The Bank of England has finally reduced its interest rates to 1% to try and boost the UK economy by encouraging banks to lend more money.

This is the fifth interest rate cut since October, when interest rates were cut to 4.5%.

However, some fear that savers are going to feel the effects of the cut the most, and others are still saying it’s not enough.

The Bank of England has issued a statement saying that rate cuts, along with government measures to boost the economy, “would provide a considerable stimulus to activity as the year progressed.”

Lenders are responding to the seriousness of the situation

Many lenders have responded to the news by cutting their mortgage rates to match the change.

Halifax has said it will pass on the rate cut to customers with standard variable rate mortgages. And other lenders such as Nationwide, Lloyds and Barclays will also pass on the rate drop.

However, some business groups are worried the further cuts will not work.

 
What some of the businesses have to say about the change

The Federation of Small Businesses (FSB) has claimed we need to improve access to capital.

The FSB conducted a survey, the results of which showed that 63% of members wanted rates to remain at their current level, and only 24% wanted further cuts.

The FSB chairman said: “These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required.”

On the other hand, the Bank of England has said: “although the transmission mechanism of monetary policy was impaired, the past cuts in Bank Rate would in due course nevertheless have a significant impact.”

Other business groups have also welcomed the cut. Graeme Leach, the Institute of Directors’ chief economist has said: “The interest rate transmission mechanism is clearly impaired but it is not yet kaput.”

Ernst & Young also supported the Banks decision, but also said they expect interest rates to drop again, “possibly to zero”.

Ernst & Young’s senior economic advisor said: “six month ago the Bank was balancing slowing economic growth with accelerating inflation.

“However the Bank now had to act to avoid deflation without fear of a further weakening of sterling; a weaker currency should serve to add to the competitiveness of exports.”

Chief economist at the Chartered Institute of Personnel and Development, John Philpott said: “the Monetary Policy Committee is right to cut Bank Rate to 1%, even though some question the merit of doing so without greater effort to increase the availability of credit to hard-pressed businesses.

“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.”

 
What do you think?

Is another cut in interest rates enough? Is the government doing enough to help the UK through the recession? Have your say here.