Interest rates fall to 1%

Dated:   

With a view to boosting the already shrinking economy the Bank of England has reduced interest rate to a record low of 1%.

In October 2008 the interest rate was 5%, but since then it has been cut 4 times in a bid to encourage lending.

However even though the Bank of England believes that the rate cuts along with other government measures will boost the economy others are less sure.

Paul Broadhead of the Building Societies Association (BSA) told the BBC that savers were being "punished", arguing that the move could hinder the funds available to societies to lend as mortgages.

Some business groups fear that further rate cuts are not the answer and believe that what is really needed is improved access to capital.

Other business groups have welcomed the cut. The Ernst and Young Item Club have supported the Bank's decision and think that interest rates should drop even further to "possibly zero".

John Philpott, chief economist at the Chartered Institute of Personnel and Development said: "With conditions in the job market deteriorating rapidly what's needed now to stem the rise in unemployment is early action to boost the supply of money to our cash-strapped economy."

The Bank faces an extremely difficult task ahead to try and restore the UK economy.


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