The Bank of England has cut its interest rates to their lowest in its 315 year history, to just 1.5% to try and help the economy.

The rates are now below 2%, their lowest since the Bank of England was founded in 1694, though some are saying that more dramatic changes should have been made in the fourth cut since October last year.

The Bank of England has said: ‘contraction in business activity has increased during the fourth quarter of 2008, and that output is likely to continue to fall sharply during the first part of this year.
‘Surveys of retailers and reports from the Bank’s regional agents imply that consumer spending has weakened.’

The BBC economics editor has surmised that the Bank is now being more cautious after steep cuts in the final months of 2008. He said: ‘There is a hint in its statement that it may sit tight for a while to assess the impact of the big reductions over the last couple of months.’

Senior economist from Ernst & Young Item Club agrees that the cut is appropriate, but says more must still be done.
‘With survey data continuing to languish at record lows – manufacturing and services surveys in the past few days have confirmed that activity is falling sharply – we see no reason for the Bank to hold back in cutting interest rates to 1% or below in the coming months.’

Most customers with tracker mortgage deals will probably have the cut automatically passed on to them by their bank/building society.

People with an average £150,000 mortgage repayment will probably see their monthly bill drop by £46. However, those with standard variable deals must wait to hear from their lender whether the cuts will be passed on.

Lloyds, HSBC, HBOS, Nationwide and Skipton Building Society have already said they will pass on at least some of the reduction, but most banks are saying their rates are being reviewed.

Following the rate cut, the pound rose in comparison with the euro, before slipping back again slightly to 1.1077 euros, probably due to the bank deciding to only cut rates by 0.5%, as opposed to the expected 1%.

The cut comes in the midst of many struggling companies coming to light.

Among them, Nissan announced the cut of 1.200 jobs on Thursday, and Zavvi have gone into administration, closing 22 stores. Not to mention the recent closure of Woolworths, and M&S closing 27 of its stores across the UK.

The Treasury are denying any current plans to inject more money into banks via quantitative easing, though are not ruling it out.

Some newspapers are claiming quantitative easing is being considered once interest rates fall closer to zero in order to avoid deflation.

Graeme Leach, chief economist for the Institute of Directors has said the MPC’s apparent caution in not presently cutting rates any further ‘highlights the uncertainty over what effect the existing monetary and fiscal stimulus will have on the economy.’