Interest rates cut to all-time low
Article Date: Jan 08 2009
The Bank may have to print more money
The Bank of England has reduced interest rates to their lowest level since it was founded in 1694.
A half-per cent cut to 1.5 per cent means that rates have fallen 350 basis points since the beginning of October, when the Bank embarked on the most aggressive series of rate cuts in its history to combat impending recession and the danger of deflation.
The move comes amid speculation that more money will have to be printed to alleviate the continuing shortage of credit available to businesses and homebuyers.
David Karsbol, chief economist at global investment bank Saxo Bank, says the government is seeking to support a ‘massively undercapitalised’ banking system in every way it can. But he is dubious about how much the move will help individual businesses when banks are still reluctant to lend.
Karsbol adds an additional reason to cut rates is to lower the value of the pound. 'We're now in an environment of competitive devaluations, where central banks are seeking to drive their currencies lower,' he states.
Alan Tomlinson, a partner at insolvency practitioner Tomlinsons, says the cut will inject confidence into financial markets but is unlikely to help struggling businesses.
'Many of the companies we are advising at present have fundamental problems such as sharp drops in turnover, large debts and ever weaker pricing, which can't be rectified by lower rates,' Tomlinson adds.
