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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 says it will now boost 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 says it will now boost 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 February'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. |
| While the Bank will initially add £75bn, Chancellor Alistair Darling has given it permission to extend this to up to £150bn. | While the Bank will initially add £75bn, Chancellor Alistair Darling has given it permission to extend this to up to £150bn. |
| Today's decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further Adrian Coles, Building Societies Association The Bank's statement in fullWhat is quantitative easing?What low rates mean for you | Today's decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further Adrian Coles, Building Societies Association The Bank's statement in fullWhat is quantitative easing?What low rates mean for you |
| 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. | Instead, it will buy assets - such as government securities (gilts) and corporate bonds. |
| 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. |
| 'Pleasantly surprised' | 'Pleasantly surprised' |
| BBC economics editor Stephanie Flanders said that while the initial size of the quantitative easing scheme was smaller than some analysts had expected, "it's a lot more than dipping their toes in the water". | BBC economics editor Stephanie Flanders said that while the initial size of the quantitative easing scheme was smaller than some analysts had expected, "it's a lot more than dipping their toes in the water". |
| The moment the rate cut was announced | The moment the rate cut was announced |
| "Those who feared that the Bank would defeat the purpose of the policy by doing it only half-heartedly may be pleasantly surprised," she said. | "Those who feared that the Bank would defeat the purpose of the policy by doing it only half-heartedly may be pleasantly surprised," she said. |
| 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". |
| Mervyn King, the Bank's Governor, sought permission from the Chancellor to start quantitative easing in a letter on 17 February. | Mervyn King, the Bank's Governor, sought permission from the Chancellor to start quantitative easing in a letter on 17 February. |
| In his reply, Mr Darling said that in the "current circumstances" the measures were now "appropriate". | In his reply, Mr Darling said that in the "current circumstances" the measures were now "appropriate". |
| Both letters were released on Thursday. | Both letters were released on Thursday. |
| 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. |
| KICK-STARTING QE Letter to the chancellor from the Bank of England [136k]Letter to the Bank of England from the chancellor [999k] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here | KICK-STARTING QE Letter to the chancellor from the Bank of England [136k]Letter to the Bank of England from the chancellor [999k] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here |
| Others argue that they are unfairly hurting the returns of savers. | Others argue that they are unfairly hurting the returns of savers. |
| "Today's decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further," said Adrian Coles, director general of the Building Societies Association. | "Today's decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further," said Adrian Coles, director general of the Building Societies Association. |
| The Council of Mortgage Lenders (CML) said the latest cut would be a "double whammy for prospective mortgage borrowers". | 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. | "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." | "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. |
| The Bank has had the room to cut interest rates because inflation has fallen on the back of reduced energy costs. | The Bank has had the room to cut interest rates because inflation has fallen on the back of reduced energy costs. |
| The most recent official figures showed that consumer prices index (CPI) inflation fell for the fourth month in succession in January to 3%, from December's 3.1%. | The most recent official figures showed that consumer prices index (CPI) inflation fell for the fourth month in succession in January to 3%, from December's 3.1%. |
| However, CPI inflation still remains above the government's 2% target. | However, CPI inflation still remains above the government's 2% target. |
| Do you have a question on interest rates or quantitative easing you would like put to an expert? Send us your questions using the form below: | Do you have a question on interest rates or quantitative easing you would like put to an expert? Send us your questions using the form below: |
| A selection of your questions will be answered by an economics expert | A selection of your questions will be answered by an economics expert |