Interest rates cut again

Ian McCafferty, CBI chief economic adviser, says: “The economy needs a significant monetary stimulus and the bank has clearly decided this will be best achieved by another big cut in interest rates. What is critical for business and consumers alike is that this reduction is passed on.

“The economy is stalling, inflation is expected to undershoot the bank’s own target and the headline RPI rate of inflation is likely to turn negative for at least a few months in 2009. We need to see lending improve and to keep business working.”

Federation of Small Businesses national chairman John Wright says the rate cut sends out the right message to the banks to lend fairly to small businesses.

“One in three of our members are still reporting trouble accessing finance so this move is very welcome,” he says. “The burden is now on the banks to pass this cut on to their customers. This cut will provide a welcome piece of mistletoe to give a kiss of life to the economy when it needs it most.”

Alan Tomlinson, partner at insolvency practitioners Tomlinsons, is less optimistic: "There’s a misconception that interest rate cuts are a panacea for business. While they can help boost confidence, the reality is they make very little difference in the short to medium term to companies that are struggling.

"Right now, many companies have fundamental problems such as significant drops inturnover, increased bad debts and weaker pricing, which simply won’t be resolved by a cut in rates, even of a full per cent. They’re not the tonic many people make them out to be."

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