Base rate falls to 0.5% while Bank plans £75billion cash boost

05 March 2009 / by Rebecca Sargent
The Bank of England has today announced that UK interest rates have fallen to 0.5 per cent as the Government battles to save the economy.

The interest rate cut was widely anticipated by market analysts and was announced alongside a £75billion asset purchase scheme, which will effectively inject more money into the economy.

Known as quantitative easing, the asset purchase scheme will allow the Bank of England to buy up gilts and pump fresh money into the economy, which is why it is often referred to as akin to printing more cash.

The move is unconventional, but is in response to the fact that more needs to be done to boost the economy, Ben Thompson, director of mortgages at Legal & General, said:

"We're so far into unchartered territory that Mervyn King must feel like Captain Cook. Few people know what to expect from quantitative easing and no-one knows how long the base rate will stay this low.

"The threat of deflation is hanging over our heads like an axe and all the while many people who want to take advantage of the depressed housing market to buy their first property or trade up are prevented from doing so because of the lack of mortgages available."

The announcements from the Bank of England have been met with mixed reactions across the board.

Adrian Coles, director general at the Building Societies Association (BSA), referred to the interest rate cut of 0.5 per cent as "a kick in the teeth for savers", while welcoming quantitative easing saying:

"We share the Government's hope that this will increase the flow of money in the economy and lessen the severity of the downturn."

© Fair Investment Company Ltd