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Bank of England cuts rates to 0.5%

The Bank of England has pushed rates ever closer to zero with the decision to cut the base rate to 0.5%.

This latest all-time interest rate low is thought to be accompanied by a statement from chancellor Alistair Darling heralding the use of quantitative easing.

With rates edging towards 0% the Bank of England is running out of options to turn around the UK’s ailing economy.

It is now expected to turn to quantitative easing measures – boosting the money supply through the purchase of government bonds – in order to get lending flowing again.

The BoE is thought to be considering whether to implement these measures, and to what extent.

But although the rate cut was widely predicted many industry commentators feel it is not appropriate to continue slashing rates with no sign that rate cuts are helping the market.

The Building Societies Association has already expressed dismay at the prospect of further cuts.

Savers would be forced to take a “savage hit” to their earnings while lenders would be unable to fund new lending for borrowers, the BSA argues.

Ben Thompson, director of mortgages at Legal & General, says: “We’re so far into uncharted territory that Mervyn King must feel like Captain Cook.

“Few people know what to expect from quantitative easing and no-one knows how long the base rate will stay this low.

“Let’s hope that the proposed injection of lending from Northern Rock and others has some sort of effect and that we can all move on following the introduction of the government’s Asset Protection Scheme.”

Brian Murphy, head of lending at Mortgage Advice Bureau, says: “With this sixth consecutive base rate cut and the prospect of quantitative easing, it appears that the Monetary Policy Committee has conceded that it will take more than base rate reductions to kick-start the ailing economy.

“While printing additional money aims to maintain inflation and subsequently prevent the UK from falling into deflation, banks will be under pressure to act in the best interests of the consumer and return to a lending level similar to that of the past if the economy is to move again.”


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