The Bank of England has cut UK interest rates by 0.5 percent trying to prevent the British economy from falling into a deep and lasting downturn.
The Bank’s policymakers are widely expected to cut rates again in February. This was their fourth reduction in as many months and brings the cost of borrowing down from five percent last October to an all-time low of 1.5 percent. But Justin King, Chief Executive of one of Britain’s biggest supermarket chains Sainsbury’s, insisted that it is not working: “What we haven’t seen so far, as a result of these cuts, is a freeing up of lending in the market and for small businesses in particular. Many of our suppliers are small businesses and they say that they can’t borrow money to invest in their business, even though interest rates have come down.” In a statement, the UK central bank agreed further measures are needed to increase lending to businesses and consumers. Against a background of residential property prices down 20 percent from their peaks, Prime Minister Gordon Brown also promised on Thursday to do more to get banks to resume lending. To try to stimulate their economies the US and Japanese central banks have slashed interest rates about as low as they can. Attention now focuses on the European Central Bank which has its benchmark rate at a relatively high 2.5 percent. It is now under pressure to announce a further cut at next week’s regular policy meeting. Adding to the arguments were the latest figures from the European Commission which showed that inflation expectations have tumbled, while economic sentiment in the euro zone plunged in December. The markets are expecting a 0.5 percent rate reduction by the ECB.