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| UK interest rates lowered to 0.5% | UK interest rates lowered to 0.5% |
| (10 minutes later) | |
| The Bank of England has cut interest rates to 0.5% - a fresh all-time low - and said it was now boosting the money supply to help revive the economy. | The Bank of England has cut interest rates to 0.5% - a fresh all-time low - and said it was now boosting the money supply to help revive the economy. |
| Interest rates have now been reduced six times since October, and the latest half a percentage point cut from January's 1% had been expected. | Interest rates have now been reduced six times since October, and the latest half a percentage point cut from January's 1% had been expected. |
| The Bank said it would expand the amount of money in the system by £75bn in an attempt to boost bank lending. | The Bank said it would expand the amount of money in the system by £75bn in an attempt to boost bank lending. |
| This policy, so far untried in the UK, is called quantitative easing. | This policy, so far untried in the UK, is called quantitative easing. |
| Buying assets | Buying assets |
| Quantitative easing is the process of increasing the amount of money in circulation in an attempt to revive the economy. | Quantitative easing is the process of increasing the amount of money in circulation in an attempt to revive the economy. |
| The idea is that if the amount of money in the system is boosted, commercial banks will find it easier to lend. | The idea is that if the amount of money in the system is boosted, commercial banks will find it easier to lend. |
| Quantitative easing is sometimes incorrectly referred to as printing money, but the Bank will not expand the supply of money by making new banknotes. | Quantitative easing is sometimes incorrectly referred to as printing money, but the Bank will not expand the supply of money by making new banknotes. |
| Instead, it will buy assets - such as government securities (gilts) and corporate bonds. But as it will not borrow to fund the purchases, it is creating new money. | Instead, it will buy assets - such as government securities (gilts) and corporate bonds. But as it will not borrow to fund the purchases, it is creating new money. |
| Similar measures were implemented in Japan at the beginning of the decade and are considered to have had limited success. | Similar measures were implemented in Japan at the beginning of the decade and are considered to have had limited success. |
| Philip Shaw, chief economist at Investec, said that quantitative easing "should in principle encourage the banks to lend to private sector agents such as households and businesses, stocking monetary growth and stimulating activity". | Philip Shaw, chief economist at Investec, said that quantitative easing "should in principle encourage the banks to lend to private sector agents such as households and businesses, stocking monetary growth and stimulating activity". |
| Rate cuts attacked | Rate cuts attacked |
| Business groups have attacked the recent cuts, saying they have done little to encourage banks to lend more. | Business groups have attacked the recent cuts, saying they have done little to encourage banks to lend more. |
| Others argue that they are unfairly hurting the returns of savers. | Others argue that they are unfairly hurting the returns of savers. |
| The Council of Mortgage Lenders (CML) said the latest cut would be a "double whammy for prospective mortgage borrowers". | |
| "This latest cut presents immense challenges for lenders whose margins are already squeezed as a result of previous reductions, leaving little scope to lower discretionary mortgage rates further," said CML director general Michael Coogan. | |
| "Savings are the lifeblood of mortgage lending, and unless lenders can offer competitive rates to savers their ability to offer new mortgages is restricted." | |
| Ian McCafferty, CBI chief economist, said the continuing rate cuts were "becoming less and less effective as a means of stimulating the economy". | Ian McCafferty, CBI chief economist, said the continuing rate cuts were "becoming less and less effective as a means of stimulating the economy". |
| "Though this latest cut will help support business and consumer confidence, it is unlikely to have a dramatic impact on the cost or availability of credit," he said. | "Though this latest cut will help support business and consumer confidence, it is unlikely to have a dramatic impact on the cost or availability of credit," he said. |