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| Version 2 | Version 3 |
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| UK reduces interest rates to 1% | UK reduces interest rates to 1% |
| (10 minutes later) | |
| The Bank of England has reduced interest rates to a record low of 1% from 1.5% in an attempt to boost the shrinking economy. | The Bank of England has reduced interest rates to a record low of 1% from 1.5% in an attempt to boost the shrinking economy. |
| This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending. | This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending. |
| The decision comes after official data showed the UK had entered a recession in December, after two successive quarters of economic contraction. | The decision comes after official data showed the UK had entered a recession in December, after two successive quarters of economic contraction. |
| But some business groups argue rate cuts will not ease the economic crisis. | But some business groups argue rate cuts will not ease the economic crisis. |
| The Bank Rate has now been reduced from 5% in October last year. | The Bank Rate has now been reduced from 5% in October last year. |
| In a statement accompanying the rate cut, the Bank of England said it had noted at its meeting that "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 measures needed? | |
| Following the rate cut Paul Broadhead of the Building Societies Association (BSA) told the BBC that savers were being "punished", arguing that the move could hinder the funds available to societies to lend as mortgages. | |
| The interest rate transmission mechanism is clearly impaired but it is not yet kaput Graeme Leach, Institute of Directors chief economist | |
| The Federation of Small Businesses (FSB) was one of the business groups that had favoured keeping rates on hold, arguing that what was needed was improved access to capital. | The Federation of Small Businesses (FSB) was one of the business groups that had favoured keeping rates on hold, arguing that what was needed was improved access to capital. |
| It said that a survey of its members found that 63% wanted rates to remain at their current level, compared with only 24% who wanted a further cut. | It said that a survey of its members found that 63% wanted rates to remain at their current level, compared with only 24% who wanted a further cut. |
| "These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required," said FSB national chairman John Wright. | "These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required," said FSB national chairman John Wright. |
| Among the mortgage lenders, Halifax said it would pass on the rate cut to customers with standard variable rate mortgages. | Among the mortgage lenders, Halifax said it would pass on the rate cut to customers with standard variable rate mortgages. |
| Balancing act | Balancing act |
| Others business groups welcomed the cut. The Institute of Director's chief economist Graeme Leach said: "The interest rate transmission mechanism is clearly impaired but it is not yet kaput". | Others business groups welcomed the cut. The Institute of Director's chief economist Graeme Leach said: "The interest rate transmission mechanism is clearly impaired but it is not yet kaput". |
| HAVE YOUR SAY I'd rather see interest rates go up to help savers and strengthen the pound Gareth, Peterborough Send us your questions | |
| The Ernst & Young Item Club had also favoured a cut of half a percentage point, but added that the economy was in "deep recession" and believed that interest rates should drop further - "possibly to zero". | The Ernst & Young Item Club had also favoured a cut of half a percentage point, but added that the economy was in "deep recession" and believed that interest rates should drop further - "possibly to zero". |
| Hetal Mehta, senior economic adviser to the Ernst & Young Item Club highlighted the "difficult task" the Bank faced. | Hetal Mehta, senior economic adviser to the Ernst & Young Item Club highlighted the "difficult task" the Bank faced. |
| "Six months ago the Bank was balancing slowing economic growth with accelerating inflation. | "Six months ago the Bank was balancing slowing economic growth with accelerating inflation. |
| "However the Bank now has 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." | "However the Bank now has 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." |
| Economic data | Economic data |
| The rate cut comes against a backdrop of gloomy economic data. | The rate cut comes against a backdrop of gloomy economic data. |
| The economy contracted by 0.6% between July and September, and by 1.5% from October to December, Office for National Statistics (ONS) figures showed. | The economy contracted by 0.6% between July and September, and by 1.5% from October to December, Office for National Statistics (ONS) figures showed. |
| And the ONS also said UK unemployment had risen to 1.92 million in the last quarter of 2008 - the highest level since 1997. | And the ONS also said UK unemployment had risen to 1.92 million in the last quarter of 2008 - the highest level since 1997. |
| Figures from the Purchasing Managers' Index (PMI) released earlier this week showed manufacturing remained weak last month, despite a slight improvement on December. | Figures from the Purchasing Managers' Index (PMI) released earlier this week showed manufacturing remained weak last month, despite a slight improvement on December. |