Britannia Radio

This cut seems wickedly perverse.  (The European Central Bank is 
holding its rates steady at 2% ).  The effect of this will be to 
weaken sterling, hit savers, while doing nothing to lower interest 
rates to struggling businesses.     Where are loans to businesses to 
come from?  Certainly not from savers at the new rates.

Indeed many would say that the rate was already too low and that the 
one thing that would restore the elusive "confidence" was a major 
change of policies leading to significantly lower government 
borrowing.  I we go onb like this our bdays are numbered before the 
IMF steps in tells us what to cut, which will be tailored to securing 
its funds rather than our future.

But reading all the comments there is becoming a great divide with 
all those who have been borrowing and spending like crazy for years 
and want "just one more shot of heroin in the arm please and I'll 
give it up for good then. I promise" and the other school realising 
that the only way to restore the elusive 'confidence' is to balance 
the book as soon as possible.

Anybody who has done the right and saved is being sacrificed - 
annihilated - to save the reckless.

xxxxxxxxxxxx cs
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FINANCIAL TIMES   5.2.09
UK interest rates cut by half a point to 1%
By Norma Cohen

The Bank of England's monetary policy committee on Thursday cut its 
key interest rate by a widely-expected half a percentage point to 1 
per cent.
In a statement accompanying the latest decision the Monetary Policy 
Committee warned there was "substantial risk" that despite 
significant economic and monetary stimulus, demand is so weak that 
inflation will undershoot the Bank's 2 per cent target.

The MPC acknowledged that the disruption in money markets means that 
the ordinary mechanism through which lower interest rates filter 
through into the wider economy is impaired. [Agreed!  So whjy cut 
again which only hits savers?  Rates are too low already. -cs] That 
means that earlier cuts in interest rates would "in due course" have 
a significant impact, as will recent easing in fiscal policy and the 
fall in both the pound and commodities prices.

The latest reduction in interest rates brings the total cut in the 
lending rate since September to 475 basis points and follows a 50 
basis point cut in December.

Ongoing risks to the wider economy required further cuts in policy, 
the MPC said, with many economists viewing Thursday's move as yet 
another step on an inexorable march towards zero interest rates.

Colin Ellis, economist at Daiwa Securities, said the MPC appeared to 
have been taken aback by the 1.5 per cent fall in GDP at the end of 
last year and said there were no signs of recovery in the economy.

"Despite the stimulus to activity from fiscal policy and the falls in 
sterling and commodity prices, the committee judged that there was 
still a substantial risk of CPI inflation undershooting the 2 per 
cent target," Mr Ellis said. "We agree: to reiterate, we do not see 
any green shoots poking through the surface at the moment, just lots 
and lots of sludge
."
Nationwide, the UK's largest building society, immediately announced 
it would reduce its base mortgage rate to 3 per cent from 3.5 per 
cent. However, other lenders - whose profit margins have been 
squeezed by the drop in rates - appeared less pleased by the move.

The Council of Mortgage Lenders said that Thursday's rate cut was 
unlikely to have a material affect on the overall state of the 
mortgage market. Michael Coogan, CML director general, said: "While 
borrowers on tracker rates will welcome the rate cut, it is doubtful 
whether it will create the conditions to achieve significantly more 
new lending. It will not be a surprise if banks and building 
societies try to prioritise savers in this very low interest rate 
environment."

However, the rate move was welcomed by the British Chambers of 
Commerce whose members are struggling with constricting credit 
conditions and rising rates.  [THESE rates with which they are 
supposed to be struggling will not alter because of this bank rate 
cut. -cs]

David Kern, chief economist at the British Chambers of Commerce 
(BCC), said: "With the recession worsening, and deflation a distinct 
risk, there is still scope for further interest rate cuts in the next 
few months, to almost zero."

He also urged the Bank to use some of the unconventional tools it has 
been given in recent weeks that can be used both to unblock frozen 
credit markets and stimulate aggregate demand.

"Given the Bank's unduly cautious record in the early stages of the 
credit crisis, UK businesses must be reassured that the Bank will be 
prepared to implement unconventional techniques. This is vital in 
order to alleviate the recession, counter threats of deflation, and 
underpin falling confidence."

Ian McCafferty, chief economic adviser to the CBI, the employers' 
body said: "This drop in rates should support business confidence 
and, when added to recent cuts of the past couple of months and the 
fall in the pound, provides a very significant stimulus to the ailing 
economy.
"But at these very low levels of interest rates, and with the credit 
mechanism still impaired, it is vital that the Bank swiftly 
supplements today's move with direct intervention in the corporate 
lending markets."

The MPC pointed to the global nature of the current slowdown, 
describing the world's economy as "in the throes of a severe an 
synchronised downturn" and noted that because of the weakness of the 
global banking and financial systems, the supply of credit to 
households and businesses remained constrained.

Earlier on Thursday, the Bank issued data showing just how 
significant the credit squeeze has become for the nation's private 
non-financial companies, which form the backbone of the economy. 
Deposits of these companies fell by £6.9bn in the fourth quarter from 
the previous quarter while lending grew by only £0.1bn.

Jane Milne, business director at the British Retail Consortium, said: 
"Interest rate cuts are not the only tool to fix the recession. The 
key issue now is not the cost of credit - but its availability."  [At 
last somebody understands!  I was feeling lonely -cs]

She added: "The Bank of England faces a fine balancing act between 
further weakening sterling and attempting to revive the economy. What 
we need now is better access to credit and a boost to consumer 
confidence."
=====================
GUARDIAN   5.2.09
Five reasons why a rate cut is wrong
The latest rate cut will make consumers panic, not spend money, says 
Ros Altmann

The Bank of England is incorrectly cutting interest rates, says Ros 
Altmann

The Bank of England has cut rates again. This is another policy mistake.

More panic cuts are not the answer to our economic crisis. 
Policymakers are desperately trying to boost the flagging economy and 
encourage more spending, lending and borrowing, but lower rates are a 
very crude weapon. They punish those who have got money to spend 
while benefiting the very groups (the banks in particular) whose 
actions caused the mess in the first place.

There are five reasons why rates should not have been cut again today:

1. It damages confidence. When people see policymakers panicking they 
reduce spending and retrench.

2. There has not been enough time for past cuts to work. Monetary 
policy operates with a lag. Continued economic weakness does not 
necessarily demand more rate cuts. If a patient fails to recover 
immediately the sensible doctor either gives the medicine time to 
work or changes the treatment, rather than constantly doubling the 
dose. An overdose could prove fatal. The same may apply to rate cuts, 
however frustrating that might be for policymakers desperately 
wanting to do something.

3. It damages savers and pensioners. Millions of pensioners, who rely 
heavily on savings interest, have seen their incomes slashed and are 
reducing their spending. Cutting rates is like cutting the state 
pension. Disgracefully, pension credit means-tests still assume 
pensioners are earning 10% (yes, 10%) interest on their savings. This 
pushes more people into poverty and damages consumption. If half of 
Britain's 12 million pensioners have £10,000 of savings, recent rate 
cuts imply £10 a week less income - more than £3bn a year less to spend.

4. It may not work anyway! Lower rates will not necessarily boost 
lending, as lenders will increase their margins and raise charges on 
loans. The problem is the availability of credit, not the price.

5. There is a huge inflation risk. Concerns about deflation are 
misguided - this is a temporary statistical phenomenon after the 
sharp price rises of 2008. Dramatic rate cuts, printing money to 
offset bad loans, and pumping billions into the failed banking system 
is setting up [very high -cs] inflation for the future. This will 
mean more hurt for savers as the value of their savings is slashed by 
inflation.

Instead of interest rate cuts we need the government to get involved 
more directly. A government-sponsored lending body would get loans to 
viable businesses more quickly. Cutting direct taxes by reintroducing 
the 10p tax rate and changing the ludicrous assumption of pensioners 
earning 10% on their savings would offer a far more effective 
stimulus than hoping lower rates will eventually kick-start lending 
by bankrupt banks. The government should take charge and the Bank of 
England should resist aggravating future inflation with more damaging 
rate cuts.
------------------------------------
. Dr Ros Altmann is an economist and expert on pensions policy, 
savings and retirement
=====================
Other comments

BBC ONLINE
Financial markets had been looking for signs that the ECB might 
follow in the footsteps of the Federal Reserve and the Bank of 
England and consider more unconventional monetary policy measures.
This could have included quantitative easing whereby central banks 
aim to increase the amount of money flowing in the economy by buying 
assets such as government bonds from banks.

Richard Snook, senior economist at the Centre for Economic and 
Business Research, says the ECB needs to take bolder action on 
monetary policy.
"The ECB is clearly behind the curve," he said.
"Global policy rates at zero and coordinated quantitative easing 
[=printing money since we've run out! -cs] across all major economies 
is the best remedy for an unprecedented global crisis," he added.

THE TIMES .
Stephen Gifford, chief economist at Grant Thornton, the accountant, 
said: "The MPC is working in unprecedented times and the only 
guarantee is that the recession will last longer than the government 
is willing to admit.
"We are now on a path to a zero rate policy which will have a 
detrimental effect on both savers and pensioners. Whilst this cut may 
be good news for some business owners and mortgage holders, banks are 
still showing little confidence in the lending market."

TELEGRAPH
The Bank's Monetary Policy Committee has been aggressively cutting 
the Bank Rate in recent months, from 5 per cent at the beginning of 
October to its current level of just 1 per cent.
Some analysts have suggested that today's cut will prove to be 
"pointless" and will fail to help lift Britain out of recession.
It is also unwelcome news for millions of savers who are bracing 
themselves for zero per cent interest on their accounts.
And many home owners are unlikely to benefit as almost seven million 
out of the 11.8 million mortgage borrowers have fixed their rate. 
Banks have also been reluctant to pass on the recent cuts to 
borrowers on their Standard Variable Rate.

GUARDIAN
[Mixed voices here between two columnists!
1. Ashley Seager: Rates should be lower
2. Ros Altmann: Five reasons why a rate cut is wrong]
1. Interest rates are almost certain to be cut again for that reason. 
Sure, get going with quantitative easing - but cut the price of money 
too. The US Federal Reserve is down at 0.25% and that is where we are 
heading too.
Looking longer-term, rates could in fact stay low for a very long 
time. The public finances are in such a bad state that we face years 
of higher taxes and lower public spending. That will act as a brake 
on the economy, so rates above, say, 3% may not be needed for a decade.
2. Five reasons why a rate cut is wrong  [full article above]
The latest rate cut will make consumers panic, not spend money,