Interest rates cut to new UK record low of 1 per cent

05 02 2009 United Kingdom

As widely expected the Bank of England has cut interest rates to 1 per cent

The Bank of England’s Monetary Policy Committee (MPC) today announced a reduction from 1.5 per cent to 1 per cent, its fifth cut in base rate in five months.

This move came only weeks after official data confirmed that the UK had entered into in recession. In its statement the Bank of England said that the substantial drop in sterling and falls in commodity prices would contribute to ‘a considerable stimulus’ to activity in the economy as the year progressed.

The MPC recognised the weakness of the global banking and financial system, constraints on the supply of credit and weak consumer spending. Inflation fell to 3.1 per cent in December and is expected to fall to below 2 per cent by the second half of the year.

Many in the business community and several economists had argued that encouraging banks to lend was more important than cutting the cost of borrowing. The Federation of Small Businesses called for the Bank to hold fire on any further interest rate cuts, saying that recent rate cuts have failed to provide a real boost to the economy.

John Wright, FSB National Chairman, reported that a survey of its members suggested other means of economic stimulus are required. "Small businesses are still struggling to access cheaper finance,” he said.

"The onus is really on the banks to start promoting these lower rates to fire up the economy."

The previous change in Bank Rate was a reduction of 0.5 percentage point to 1.5 per cent on 8 January 2009. At the beginning of February last year the base rate was 5.5 per cent.

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