Mixed business response to latest interest rates cut

Mixed business response to latest interest rates cut

The Bank of England’s decision to reduce interest rates to 1.5 per cent means that the official cost of borrowing is now at its lowest in its 315-year history.

Business groups were varied in their reactions to the news.

While welcoming the further cut in the cost of borrowing, John Wright, the national chairman of the Federation of Small Businesses (FSB), argued that access to finance for businesses was proving just as problematical as its cost.

Mr Wright said: “Despite previous cuts, around a third of our members are still complaining about poor access to affordable finance. With rates now at their lowest ever level, small businesses are now more concerned about access to money. The FSB would like a cast-iron guarantee that the banks will not only pass on the interest rate cuts, but pass on the money to the small businesses that need it.

“The small business sector is the sector to see the UK out of recession in 2009 and into economic recovery, but this can only work if credit lines start flowing to viable businesses again.”

The CBI acknowledged that reductions in interest rates by themselves cannot jump-start the flow of credit but still applauded the decision to shave 0.5 per cent off the basic rate.

Ian McCafferty, the CBI’s chief economic adviser, said: “If credit flows can be restarted, the monetary stimulus now in the pipeline is significant, especially when the fall in the pound is taken into consideration. A more gradualist approach to rate setting is likely in the coming months.”

However, the British Chambers of Commerce (BCC) expressed its disappointment at the scale of the cut.

David Kern, chief economist at the BCC, said: “British business is disappointed by the MPC’s decision to cut interest rates by just a half per cent. We believe it is an inadequate reaction to the rapid worsening in economic circumstances.

“The recent downward revision in GDP figures, coupled with further unemployment increases and rapid declines in house prices, justified a full one per cent cut in rates, in line with the BCC’s recommendations.”

Mr Kern added: “The outlook is dire, and the MPC must act forcefully. In order to ensure that the economy does not slide into a prolonged depression, we urge the MPC to reduce interest rates to almost zero in the next few months. It must also supplement lower interest rates with vigorous quantitative easing.”