This is the sixth time that interest rates have been cut since October. Ian McCafferty, chief economist at the CBI, says that the continuing rate cuts are "becoming less and less effective as a means of stimulating the economy". "Though this latest cut will help support business and consumer confidence, it is unlikely to have a dramatic impact on the cost or availability of credit," he said. The Bank of England has also announced plans to implement a "quantitative easing" strategy to bring some £75bn into our struggling economy. "Quantitative easing" does not mean that the bank will be printing more money, simply artifically raising the economy’s cash balance. In theory, this should make it easier for commercial banks to resume lending. Alan Tomlinson, partner at insolvency practitioners Tomlinsons, is unimpressed by the move. "This latest cut will do very little to help business," he says. "Certainly not the growing number of businesses that are struggling. "Right now, many companies have far more fundamental problems such as significant drops in turnover, increased bad debts and weaker pricing, which simply won’t be resolved by cheaper money. Rate cuts aren’t the tonic many people make them out to be." Tim Sutcliffe, MD of financial advisers pi financial, is equally skeptical: "The Bank of England is fast running out of options – with only one more 0.5 per cent rate cut to fall back on, they are going to have to start looking for another battle plan. "The switch to quantitative easing to manage money supply will help but only if they can achieve the right balance – aggressive enough to encourage lending by banks but not creating too much cash to send inflation out of control." Do you think that further interest cuts and quantitative easing are the way to save our economy? Have your say in the Real Business forum. Related articlesDon’t panic about deflationInterest rates at 1 per centMost FDs wouldn’t recommend their bank Picture source
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