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interest rate cut Posts
Another 0.5% rate cut isn’t going to help at all
February 6th, 2009
Yesterday the Bank of England reduced interest rates by 0.5% to a new historic low of 1.0%. There was ‘widespread’ expectation that this would happen and ‘be a good thing’. But is it?
The belief, held by the Government, is that this latest reduction will encourage us all to spend more. Just like the 2.5% reduction in VAT was supposed to do. This reduction benefits those on variable mortgages but not savers. Those who actually benefit are more likely to hold onto the savings than to go out on the High Street and spend.
And what about small and medium sized business – the backbone of the UK economy? This latest reduction won’t help at all. It’s the lack of available credit that’s killing these businesses, and the sooner the Bank of England and Goverment come to their aid the less likely they are to go out of business. Only today with news that there was a 220% increase in insolvencies in the final quarter of last year serves notice of the worsening situation.
A business needs the ability to borrow to drive itself forward. A 0.5% rate cut won’t do anything. In the meantime Banks sit on their hands and pay huge bonuses despite massive bail outs.
Something’s gone wrong.