Ian McCafferty, CBI chief economic adviser, says the move should support business confidence and, when combined with recent cuts and the fall in the value of the pound, stimulate the economy.
He adds: "But at these very low levels of interest rates, and with the credit mechanism still impaired, it is vital that the bank swiftly supplements today’s move with direct intervention in the corporate lending markets. “The real problem is not the price of credit, but its availability." However, Charles Stanley Stockbrokers chief economist Edward Menashy questions the impact on the economy of the rate cut. “It must be asked, why, if a total of 375 basis points of rate cuts have not arrested the decline in demand, that a further 50 basis points should suddenly kick start the UK economy?” he says. “Perhaps it is not the price of credit but the bank’s inability to lend it that lies behind the dearth of credit provision. The unusual combination of three interrelated, devastating developments has brought the UK and the global banking system to its knees, when only one could have proved to be insurmountable.
“The developments relate to the sub-prime collapse, the deleveraging process that had been hanging like a sword of Damocles over the global financial system and the emergence of the most severe recession since World War II. The resulting bad debt position from these forces has been gigantic.”
“Banks must, by now, have surely passed the midnight hour for full disclosure of their bad debt position. If the banks genuinely cannot estimate their bad debt figures then under the supervision of the Bank of England a theoretical value should be arrived at and subsequently ring fenced. The supply of credit must be restored for there is no time to lose.” Will lower interest rates have an impact on your business? Have your say below or on the Real Business Forum.Related articlesSterling falls to new record lawInterest rates: reaction to the record lawInterest rates cut to 1.5 per centPicture source
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