Interest rate decision

The Bank of England has just cut interest rates by 1% to 2%.

This puts them at their lowest level since September 1939, according to Sky News or 1951, according to the BBC.

It follows last month's cut of 1.5%.

12.30pm Ian McCafferty, the CBI Chief Economic Adviser gave his reaction as follows:

“The economy needs a significant monetary stimulus and the Bank has clearly decided this will be best achieved by another big cut in interest rates. What is critical for business and consumers alike is that this reduction is passed on. The economy is stalling, inflation is expected to undershoot the Bank’s own target and the headline RPI rate of inflation is likely to turn negative for at least a few months in 2009. We need to see lending improve and to keep business working.”

12.45pm Reaction from George Osborne:

”We have called for active monetary policy to tackle the recession so I welcome this bold move by the Bank of England. Sadly there couldn't be a clearer sign of just how sick the British economy is under Labour's recession. Gordon Brown's claim just a few weeks ago that Britain was well prepared now lies in tatters. It's essential not only that the rate cut is passed on by the banks, but that the government also takes action to get lending flowing to businesses. That's why we proposed the National Loan Guarantee Scheme to keep thousands of people in work."

Comments

[Tony Makara]

An attempt to boost consumer demand by weakening the purchasing power of the currency. Truly bizarre.

[MartinW]

Further suffering in prospect for we, the prudent retired savers.

[Man in a Shed]

They are now pushing on that notorious piece of string.

The aim must be to destroy long term debt (and savings/pensions) by inflation.

This has to be a political move.

[Sally Roberts]

Quite right, MartinW! ZanuLab is not fond of savers. After all those who are prudent would have money put by and would not have to throw themselves on the tender mercies of the State!

[YMT]

My Savings, they cry.

[Tony Makara]

The party must let every person in the country know that the Pound in their pocket is worth less with every passing day under the Labour government.

The only saving grace with relation to Pound/Dollar is that the Obama administration seems determined to do something about trade deficits, which means the Dollar will have to fall. Nontheless we should all be worried by the MPCs unilateral mindset on rate-cuts.

As Lord Lawson said recently any cuts have to be co-ordinated otherwise our currency is going to shrink in value and we will be importing inflation.

[resident leftie]

This puts the lie in Cameron's mouth that the BoE wouldn't doing anything if there was a fiscal stimulus.

Posted by: Sally Roberts | December 04, 2008 at 12:21

Quite right, MartinW! ZanuLab is not fond of savers.

I would appreciate it if you didn't casually liken Labour, a democratic party with a proud history and the legitmately elected government of the UK, to the ruling party of a murderous dictatorship, whose tactics include rape, murder and starving the opposition. I'd expect this from certain other posters, but not from you.

[GB£.com]

"legitmately elected government of the UK"

As I recall the British people voted for Labour on the clear pledge that Blair would lead them for a full term.

Instead there was a coup, the British's people were ignored, and an unelected PM seized control.

That doesn't sound legitimate to me.

[Onthejob]

I would appreciate it if you didn't casually liken Labour, a democratic party with a proud history and the legitmately elected government of the UK, to the ruling party of a murderous dictatorship, whose tactics include rape, murder and starving the opposition. I'd expect this from certain other posters, but not from you.

Arrrr i think you have upset the member of zanulabour sally diddums

[Tony Makara]

The similarities with dictatorships are certainly striking. A government that lies to its own people to start and illegal war and has been caught lying in countless other ways. A government that oversees the arrest of an opposition politician because it is afraid he might expose its shortcomings. A government that seeks to stamp and index its people as if they are like criminals, that threatens to crush your car if you are late paying it money, and a government that is constantly threatening its people with public service broadcasts stating that we are all on its database.

[resident leftie]

Posted by: Onthejob | December 04, 2008 at 13:09

Arrrr i think you have upset the member of zanulabour sally diddums

From those people for whom I have no regard whatsoever - and you are certainly on that list - I have no interest other than mild amusement in their statements. Sally, however, is not on that list.

I will say that stylistic tics such as likening Labour to Zanu-PF, and calling the (much anticipated) appointment of Gordon Brown a "coup" does much to give Tory activists and their bedfellows a bad reputation in the mainstream media, just as Respect and the SWP calling the Tories fascists and Nazis, or describing Americans as evil make them unworthy of serious consideration.

You are just making yourselves look ridiculous. I know the Daily Mail doesn't report much on Zimbabwe (except when Mugabe is taking over farms), but have you any idea what it's like there?

We live in a proud democracy. Labour was re-elected after the Iraq war (which I and many others opposed and practically every Tory voted for.) In under two years, you will have the chance the vote out this government. By all means take it, and be pleased that we have that choice.

I'll drop this now.

[Onthejob]

i actually feel i rather deserve that resident leftie sorry it was very purile of me

[Raj]

Does anyone know how the government plans to get us saving again so that we won't be snowballed under yet another debt mountain in the future?

Oh, wait - Labour doesn't plan to be in government then. It wants to get into as good a position as it can in Opposition, leave a mess for the Conservatives to clear up and then hope it can come back in on a wave of grumblings about having to make do - just like in 1997.

[resident leftie]

Posted by: Onthejob | December 04, 2008 at 13:36

i actually feel i rather deserve that resident leftie sorry it was very purile of me

The cut and thrust of political debate can get a little heated, and I accept your magnanimous apology. Sorry for derailing the thread.

[gezmond007]

Interest rates cut , brilliant for me and hundred and thousands of others ,especially if you have a tracker morgage . My morgage has come down £340 in four months !

This on top of the help for people with arrears , come on, be objective, it,s got to be good news. I do take the point about savers but the majority of them are not at risk of losing their homes

[Tony Makara]

Raj, you said it my friend! It is classic bridge-burning from a doomed government. Something that concerns me is how people are going to fare in an economy full of imported inflation. Cutting rates might free-up some money but that money is worth less in real terms because the rates cuts are killing purchasing power. So in effect, that is just as bad as 'headline' inflation. Since Sterling started to fall a basket of basic food staples has risen by 17-25%, worse is yet to come.

[The Bishops Wife]

"Interest rates cut , brilliant for me and hundred and thousands of others ,especially if you have a tracker morgage . My morgage has come down £340 in four months ! "

I am glad that it is helping some poeple. The cut in intrest rates is bad for me I jave seen my income (from savings)drop by over £200 a month in the same time period.

[Steve Tierney]

Resident Leftie:- I agree that its a bit rotten to compare the Labour party with Zanu PF for the reasons you said. I also don't like it when people's names are twisted for brief amusing or sarcastic effect. I think, except in moments of genuine brevity, it devalues the argument rather than enforcing it.

However, some of us here are really, really worried about the cumulative effects on our civil liberties since Labour came to power. Take any individual action on its own and you might say: "Storm in a teacup", or "fuss over nothing". But as a 'collective' (no pun intended) they can easily be seen as looking rather sinister.

I know for some the Damian Green affair is just a political tool to be used on both sides for electoral advantage. But for some activists it is actually frightening. I count myself among those.

I'd like to add that many decent, honourable Liberal and Labour MPs have had the courage to come out and say it was wrong too. I don't agree with the concensus that it's "us against them".

But I've read your previous posts and I know you're an intelligent person. Surely you must agree that the present government has been becoming steadily more authoritarian? If you're being really truthful?

With that in mind, and with the recent arrest and raid on the Houses Of Parliament by police for what it appears is nothing more than "saying things the government doesn't like" is it surprising that people are using metaphors like "Za-NuLabour" to illustrate their disquiet with the way things are going?

People are whistling in the dark, because we are very, very unsettled by events unfolding around us. I hope you can understand that even if you don't share the view. Or perhaps your defence of the Labour party is a form of whistling in the dark all your own?

[Onthejob]

There are of course some of us who neither have savings or a morgage but are paying higher food prices i would hope the BoE know what it is doing. I know a lot of people in my boat who hope interest rates stay low and house prices keep falling i might then be able to get on the property ladder this is a long overdue correction and one that is needed.

on the other issue being dicussed the only time i have used the term "zanulabour" was today i have however in the past referred to the (sub)Prime Minister and left wing tree hugging hippies. terms i intend on continuing with as a bit of light relief

[rugfish]

I just tuned in to the debate in parliament and listened to Dominic Grieve. What splendid commonsense that man talks !

Next up was the LibDem spokesman Chris Hune, who said there have been 3,600 new laws passed since 1997 and most of them are a ludicrous waste of time and money.

One law he referred to was the law which makes it illegal to cause a nuclear explosion.

( which presumably blew the country up with a nuclear bomb for heavens sake ) !!!

As he said, what's the point of that if by committing such an act you would have killed someone ( all of us ), and if you had not killed anyone then there'd be no charge ?

Jacqui Smith sat there in stoney silence and Jack Straw jumped to his feet to ask Hune to send HIM the 3,600 laws he was talking about.

Quite rightly, Chris Hune pointed out that HE was the government and could go get them himself !!!

It's an utter farce and it's even a 'crime' to use an ear tag twice apparently but I can only thank god I don't need one yet !!!

[rugfish]

Sorry for going off thread there by the way.

[GB£.com]

"and calling the (much anticipated) appointment of Gordon Brown a "coup" does much to give Tory activists and their bedfellows a bad reputation.."

Um RL, I was quoting Stephen Byers, not Tories, old boy.

http://tinyurl.com/6qoavm
"Stephen Byers, a leading Blairite, warned: "If we want to have an orderly transition, what we cannot have is the forced removal of Tony Blair as our leader. Those people who are organising a coup against him are playing a very dangerous game and they should stop.""

[resident leftie]

I agree that this government is too authoritarian, nearly as authoritarian as Thatcher, and a considered critique of their behaviour is a noble endeavour. I personally oppose the ID card, much of the anti-terrorist legislation, ASBOs, and the ubiiquity of CCTV cameras. But, a reasonable debate is what it should be. I think a Labour government can get a way with certain reactionary policies, in the same way only Nixon can go to China. I think some of the bravado is a fear that the electorate will see them as "soft on crime and immigration."

But, you can argue against such tendencies without recourse to overblown and casually used metaphors. My primary concern was that it belittles the plight of Zimbabeweans.

Last year, Labour ministers were routinely rounded up and arrested, with the police leaking like sieves, without a sniff of protest from the Tory party. Harriet Harman has already suggested that the arrest of an MP should require a high court warrant. The Damian Green matter I do not think is an example of this government's authoritarianism, and I suspect there will be little if no comeback on the government. The fact is while you were indulging in partisan concern about a Tory MP, in the Lords, we had the following legislation

"The new Counter Terrorism Bill, currently in The Lords, contains an amendment to Section 58 of the Terrorism Act 2000. This amendment will make it an offence, punishable by up to ten years imprisonment, to publish or elicit information about any police constable "of a kind likely to be useful to a person committing or preparing an act of terrorism".

This kind of information is not defined.

And meanwhile, it's the much-derided ECHR (at least around here) which ensures the rights of people not to appear on the DNA database.

[johnC]

'This puts them at their lowest level since September 1939, according to Sky News or 1951, according to the BBC.'

The rate was cut to 2% in 1939 and remained at this level until November 1951. So for once the BBC is right.

[snegchui]

Resident Leftie:
You are guilty of your own charge of exaggeration. No Ministers were arrested, Lord Levy was a Special Envoy, not a Minister.
All Ministers from Blair down were questioned, and not under caution.
Some civil servants were arrested, and some were questioned under caution. This loose talk of rampant rounding up is typical of Labour spin and lies.
In the case of Damien Green, we have many admissions of poor procedure by the Police, the Parliamentary Staff and the Speaker. Collectively they add up to gross violations of the rights of Parliament and its role in society. Idiocy and vacuity on a grand scale is no excuse for this violation.
And Maggie was nowhere near as authoritarian as this bunch, you want to look back at bullying and intimidation during those times, I suggest you start with Arthur Scargill and the art of democratic centralist socialism.

[David_at_Home]

I just do not see how Maggie was authoritarian. Strong willed, yes! Knew with she wanted, yes! Sometimes stubborn in pursuing policies which were obviously not going to work, yes!

Before Resident Leftie brings up mentions the Miners Strike I should remind him that the role of the police was limited to ensuring that those miners and others who wished to go to work, could do so. In those days, the police did not arrest people for thought crimes, bogus accusations of terrorism or to make up the quota of white middle aged middle class men (in the past decade, I have twice been stopped and breathalysed when obviously stone cold sober!).

[michael mcgough]

"This puts them at their lowest level since September 1939, "

They'll be issueing 'WAR LOAN NOTES' SOON.

[resident leftie]

Posted by: snegchui | December 04, 2008 at 15:08
You are guilty of your own charge of exaggeration. No Ministers were arrested, Lord Levy was a Special Envoy, not a Minister.
All Ministers from Blair down were questioned, and not under caution.

I stand corrected.

[Steve Tierney]

Leftie: In the Damian Green matter I'm not being partisan, or I'm trying hard not to be anyway. I've listened respectfully as members on all sides of the house have stood up and been counted.

It's not the same thing as the cash-for-honours situation, as I suspect you know. But even so, I agree we could have been fairer back then. I certainly would be "next time", if that's any consolation.

We could get into whether Thatcher was, or was not, authoritarian. But what's the point? It's going to get us into trade unions, and miners, and other matters we'll never agree on.

I just think that choosing to ignore a current circumstance out of sour grapes over perceived older circumstances is not helpful. We could go all the way back to Charles I, couldn't we? The fact of the matter is the situation we have right now is very wrong indeed. Isn't it?

Can I just say, If I had been honoured with a hereditary and historic position like Sarjeant-At-Arms the police would have had to beat their way past me. What's the point of having a ridiculous, oversized, hereditary mace if you don't plant it firmly and say: "You shall not pass!" when the Met decide to overstep their authority?

[resident leftie]

Can I just say, If I had been honoured with a hereditary and historic position like Sarjeant-At-Arms the police would have had to beat their way past me. What's the point of having a ridiculous, oversized, hereditary mace if you don't plant it firmly and say: "You shall not pass!" when the Met decide to overstep their authority?

I am in agreement.

[The Bishop Swine]

"This puts them at their lowest level since September 1939, "

They'll be issueing 'WAR LOAN NOTES' SOON.

If we were in any doubt about the very serious nature of the economic slowdown we are experiencing this is confirmation that our optimism is unfounded. For the BOE to go this far so quickly is utterly unprecedented. Even in the bad days just before WW2 we had interest rates that fell slowly over a number of years. It now seems unthinkable that this recession is going to anything other than deep and prolonged.

[David_at_Home]

Should it not be "Ye shall not pass"?

[Gloy Plopwell]

Does this mean they could go to - figures, and would the banks be compeled to pay us money on morgages then?

[Norm Brainer]

None Shall Pass

[YMT]

@ Bishop

I was "just" thinking the same thing, the government will be so damn squeezed for cash and the coffers so completely empty they'll be issuing War Bonds to raise extra cash at this rate.

[Canny Adams]

I was worried about coming off my fixed rate mortgage till now. These rate cuts will save me a decent amount of money per month and I'll do my bit by spending it.

One of the biggest issues facing the economy is that banks look at small businesses right now in the same way you would examine dog faeces on the sole of your shoe. We are a nation driven by small businesses and the banks are turning their back on us.

I run a small business, our turnover is expected to hit £3m plus this year and I have to manage that with a £10k overdraft. Believe me, it's like trying to knit with fresh air.

We own the banks now and a way needs to be found to free up working capital to ensure the job situation doesn't worsen.

[Conservative Homer]

Zero % interest rates didnt help Japan and they wont help us either.

The problem isnt interest rates as such, its that we arent earning enough. We have a negative savings rate, we have to borrow just to get by, even zero rates of interest wont help that. Sooner or later the principle catches up, compounded by growing unemployment.

[Yet Another Anon]

I can't imagine it going so far as The Bank of England lending money at 0% interest, the rate might go down a bit further, but even if Central Banks in some parts of the world were to start lending at 0%, the Commercial banks certainly aren't - they will expect a return on their money and are already reluctant to cut their rates much further which is what the aim of the Interest Rate cuts were.

The risk is that with the huge loosening of fiscal and monetary policy that after a spell of the inflation rate slowing, it accelerates and the brakes have to be put on to avoid hyperinflation.

[rugfish]

We own the banks now and a way needs to be found to free up working capital to ensure the job situation doesn't worsen.

Posted by: Canny Adams | December 04, 2008 at 21:41

That comment along with the rest of your post says it all my friend.

When people ask why should the taxpayer bail out businesses, they should kick themselves to recall that businesses are the biggest taxpayers the country has.

The only measure available now is what they are calling 'easing', which amounts to printing money and putting it into the economy.

People will naturally have little confidence to BORROW money if they see jobs being lost in the tens of thousand and banks will not have confidence to lend if they see businesses going to the wall and laying off their customers.

Tax cuts coupled with tax refunds coupled with tax deferment,coupled with measures the country has already taken, will restore confidence, and it will stabilise business, and it will provide the capital banks need in order to lend.

There are of course effects to doing this but there are no alternatives IF you want to avoid a depression.

[The Bishop Swine]

Dave is coming:

"We aren’t earning enough"

This is because we are not producing enough.
To cope with falling wages we have relied on cheap (and nasty) imports.
We have forsaken the sensible pay rise and have been forced to borrow.
We have raised Tax’s to stifling levels and we have allowed monopolies to
take much of the remaining monies. we allowed repeated and big increases beyond inflation.
We are unable to shift goods not because people do not want them but because we can no longer afford them. There is only one answer and that is raise production. We need a concerted effort to rebuild our manufacturing base. The danger is that Browns actions will weaken our recovery with an excessive debt burden. We should be cutting spending and we should be diverting monies to business startups. The Civil Service and the Public Sector is bloated, sack a proportion of very able people and encourage them to turn an honest profit instead.