The Bank of England surprised analysts with a massive 1.5% cut in base rates, 6th November (Bank rate cuts)
Interest rates are now at 3%, well below the CPI measure of inflation.
Interest rates have been cut on the back of a string of poor economic indicators, suggesting the economy is in its most serious slowdown since 1981.
It remains to be seen whether this bold move to cut rates will actually stimulate the economy. Interest rates may not solve the problem of recession because:
- Interest rates have a time lag
- Banks will not pass the full 150base points onto consumers
- Confidence is so low, people don’t want to borrow anyway.
- Banks don’t want to lend mortgages because of liquidity problems
Nevertheless it is good news for borrowers and the long pressed housing market.
