While news that UK base rates have been reduced by 0.25% has been greeted with relief in many areas of business, there are real fears that it is too little too late. In a week which saw the owners of the Egg credit card operation threaten to close down over 100,000 accounts, we are seeing yet further signs that the economy is set for a very tough 12 months to say the least. So what is actually happening?

The impact of the interest rate cut was reduced somewhat by the very fact that everyone in the financial markets knew that this was going to happen, on the back of recent US rate cuts. However, the concerns generated by the move by Egg have further highlighted the real problems underneath the surface, and the concerns that business growth will be severely dented in the short term by the economy and the lack of affordable finance. The Egg situation has been summarised as “house keeping”, but this is from a company who have been on of the leaders in the UK, a company who need to make the business pay and a company who appear to be genuinely concerned about the possible cases of default.

There will come a point whereby the continuous fall in interest rates will kick start the economy, although many believe that this is still some way off. What the markets really need at this moment in time is confidence in the British Government and the Bank of England. Many government figures are brushing off the Northern Rock situation as something unconnected, but the genuine lack of confidence in the skills of the government to handle this difficult financial situation is very much in the foreground.

Time will tell exactly how this current situation pans out, but the lack of confidence more than anything is causing as much trouble as “high” interest rates.