INSTANT VIEW: BoE cuts interest rates to 2.0 percent
LONDON (Reuters) - The Bank of England cut interest rates by one percentage point to 2.0 percent on Thursday, taking borrowing costs to their lowest in more than half a century, amid signs the economy is heading for a deep recession.
Following are reactions from business groups and economists to the decision, latest comments first:
GRAEME LEACH, CHIEF ECONOMIST OF INSTITUTE OF DIRECTORS
"The MPC decision is bold but necessary. The MPC is clearly taking the view that the longer deep interest rate cuts are delayed the worse the recession is likely to become. The MPC still has some ammunition left but not a lot. We can expect further rate reductions early in 2009 but then the MPC will have exhausted its interest rate armory. "
HOWARD ARCHER, CHIEF UK ECONOMIST, IHS GLOBAL INSIGHT
"Interest rates are now down to the equal lowest level since the Bank of England was founded in 1694, highlighting the very serious situation that the UK economy is in.
"We expect the Bank of England to reduce interest rates by a further 75 basis points to 1.25% in January, and would not rule out a larger cut if the economic downturn continues to deepen.
"We now expect interest rates to fall to a low of 0.50% in the second quarter of 2009 and then stay there for the rest of the year. However, it is not inconceivable that interest rates could come all the way down to zero.
STUART PORTEOUS, HEAD OF RBS GROUP ECONOMICS
"Business activity, employment, confidence - take your pick, the UK economy is steering dangerously close to a deep recession. The MPC clearly thinks interest rates are at the wrong level and is intent on bringing them down as quickly as possible. At this stage, the risks of doing too little dwarf the risks of doing too much. But as rates approach zero, let's spare a thought for the 8 million or so net savers in the UK."
STEPHEN ROBERTSON, DIRECTOR GENERAL BRITISH RETAIL
CONSORTIUM
"This is exactly the type of decisive action we need during these uncertain times. With the threat of inflation fading, the Bank of England is right to concentrate on jump starting the economy.
"Decisions now will greatly influence how long and deep the recession is.
"Retailers are passing on VAT cuts and going further with big discounts of their own to help hard-pressed customers. The Bank's job is not done. It must continue to cut rates in the New Year to get the economy heading in the right direction again."
GRAEME LEACH, CHIEF ECONOMIST, INSTITUTE OF DIRECTORS
"The MPC decision is bold but necessary. The MPC is clearly taking the view that the longer deep interest rate cuts are delayed the worse the recession is likely to become. The MPC still has some ammunition left but not a lot. We can expect further rate reductions early in 2009 but then the MPC will have exhausted its interest rate armory."
IAN MCCAFFERTY, CBI CHIEF ECONOMIC ADVISOR
"The economy needs a significant monetary stimulus and the Bank has clearly decided this will be best achieved by another big cut in interest rates. What is critical for business and consumers alike is that this reduction is passed on.
"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. We need to see lending improve and to keep business working."
