Bank desperately tries to lift gloom

Mar 6 2009 by Adrian Pearson, The Journal

INTEREST rates were cut again yesterday as the Bank of England introduces unprecedented measures to prevent the recession deepening.

Borrowing rates are now at 0.5%, the lowest since the central bank was founded in 1694 and a half percent below last month’s previous record low of 1%.

Alongside the rate cuts the Bank also announced plans to introduce so-called quantitative easing, by which the Bank will create £75bn in new money and use it to buy up bad debt.

In a letter to the Chancellor Bank governor Mervyn King said: “In these highly uncertain times, there are merits to stimulating the economy through a variety of different channels.”

Last night Newcastle Central MP Jim Cousins said the measures were long overdue.

The MP, who sits on the Treasury select committee, said: “The Bank of England taking such decisive action to increase the money supply is now the single most important thing that can happen to get us out of the present tough times.

“These measures are far more important than interest rates cuts now.

“Personally I wish they had started doing this six months ago.

“In my mind the best way of getting value for this money is for the Bank to start backing new lending on the high street, to start backing small businesses.”

Four major lenders said yesterday they would be passing on some of the latest interest rate cut to their variable rate mortgage customers.

But the region’s manufactures have already warned that despite rate cuts borrowing costs were rising. Tony Sarginson, external affairs adviser at manufacturing group EEF North East, said: “While today’s cut is welcome it will pass many companies by, given how low rates are already.

“Manufacturers in the North East are far more concerned with the health of the economy, the financial system and greater access to cheaper credit. While it may be a bold step into the unknown, swift and steady implementation of unconventional measures from the Bank is now the right move.”

Business leaders also warned that the rate cut alone was unlikely to help struggling companies.

CBI Regional Director Sarah Green said yesterday: “With interest rates already at historic lows, the conventional rate cutting tool is 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.”

Chancellor Alistair Darling insisted yesterday it was “absolutely essential” to increase the money supply in order for Britain to recover from the recession.

The Chancellor said that, usually, the Bank of England would just cut interest rates as required.

But he said that “in these extraordinary times”, further actions were necessary.