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04/12/2008 Interest rates cut to 2%

The Bank of England has shaved another 1% off the cost of borrowing bringing interest rates down to 2%, the lowest level since 1951.

The move, which was predicted by many analysts, was welcomed by experts as providing the kickstart the economy needs.

John Wright, national chairman of the Federation of Small Businesses, said the rate cut was "historic" and sent a message to banks to increase lending to small businesses. "One in three of our members are still reporting trouble accessing finance so this move is very welcome," he added. "The burden is now on the banks to pass this cut on to their customers. This cut will provide a welcome piece of mistletoe to give a kiss of life to the economy when it needs it most."

The Confederation of British Industry (CBI) agreed saying that while the cut was significant it was "critical" the reduction is passed onto businesses and consumers. "The economy is stalling, inflation is expected to undershoot the Bank's own target and the headline RPI rate of inflation is likely to turn negative for at least a few months in 2009," said Ian McCafferty, CBI chief economic adviser. "We need to see lending improve and to keep business working." The UK is one of several countries which have today cut interest rates in a bid to deal the economic downturn. Rates in Indonesia were slashed to 9.25%, the first cut for a year; New Zealand's central bank reduced the cost of borrowing by a record 1.5% to 5% and in Sweden an "emergency" cut has reduced rates by 1.75% to 2%.