Post by Patrick on Feb 5, 2009 12:23:18 GMT
"The Bank of England has reduced interest rates to a record low of 1% from 1.5% in an attempt to boost the slowing economy, as widely expected.
This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending.
The decision comes after official data showed the UK had entered a recession in December, after two quarters of shrinking economic growth.
But some business groups argue rate cuts will not ease the economic crisis.
Following the rate cute Paul Broadhead of the Building Societies Association (BSA) told the BBC "savers are being punished" and the move could hinder the funds available to societies to lend as mortgages.
Base rates have now come down from 5% in October.
The Federation of Small Businesses (FSB) was one of the business groups that had favoured rates to be kept on hold.
It argued that what was needed was improved access to capital.
It said that a survey of its members found that 63% wanted rates to remain at their current level, compared with only 24% who wanted a further cut.
"These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required," said FSB national chairman John Wright.
The BSA warned that a cut would have a "severe impact on savers", and might threaten the availability of funds available to societies to lend as mortgages.
'Last hurrah'
Others welcomed the cut, with the Institute of Director's chief economist Graeme Leach saying: "The half-point cut means we're getting close to the last hurrah for interest rates, before the quantitative easing begins."
"The interest rate transmission mechanism is clearly impaired but it is not yet kaput".
The Ernst & Young Item Club had also favoured the 50 basis point cut, but added that the economy was in "deep recession" and believed that interest rates should drop further - "possibly to zero".
The Bank defended its stance saying that at the Monetary Policy Committee meeting in February it noted that: "Although the transmission mechanism of monetary policy was impaired, the past cuts in the Bank Rate would in due course have a significant impact".
But the move come against a backdrop of gloomy economic data.
The economy contracted by 0.6% between July and September, and by 1.5% from October to December, Office for National Statistics (ONS) figures showed.
And the ONS also said UK unemployment had risen to 1.92 million in the last quarter of 2008 - the highest level since 1997.
Figures from the Purchasing Managers' Index (PMI) released earlier this week showed manufacturing remained weak last month, despite a slight improvement on December."
