Rate cut of 0.5% will 'do little to ease the economy'

05 March 2009 / by Rebecca Sargent
Director at Fairinvestment.co.uk, James Caldwell comments on today's announcement from the Bank of England that base rate has been cut to 0.5%

"The latest interest rate cut is just another attempt at reassuring consumers and businesses that the Bank is doing something to combat the recession. In reality, the cut of 0.5 per cent will do very little to ease the economy.

"Interest rates have now been cut five times in the last five months, but have offered little relief to households and businesses. The gap between the rate at which banks will lend to each other (Libor) and the base rate needs to close before more impact can be felt in the mortgage market.

"Meanwhile, savers, including pensioners are suffering as a result of falling savings rates as deposit-takers hurry to pass the cuts on through savings accounts, ISAs and bonds.

"On the other hand, quantitative easing - which will effectively put more cash into the economy - although unconventional, should have a positive impact on money markets. It is clear that more needs to be done to help consumers and small businesses, and only time will tell if quantitative easing will have the desired effect."