Business figures call for 1% rate cut
LEADING business figures have called for a full percentage point to be cut from interest rates, ahead of the Monetary Policy Committee’s announcement on Thursday.
Business lobbying organisation the CBI, and accountancy firm KPMG have both called for a cut of 1%.
The CBI said that the economy’s sharp downturn in recent weeks justifies a more aggressive approach than the 0.5% it had previously called for.
John Cridland, CBI deputy director-general, said: “The continued paralysis in the wholesale money markets reduces the efficacy of smaller base rate cuts, so a bolder step is needed. The markets are already expecting an aggressive cut, so concerns about the impact on sterling should be limited.”
And KPMG’s chief economist, Andrew Smith, said that the sooner the MPC lowers interest rates – and the further they fall – the more likely it is that the worst effects of the downturn can be headed off.
“Confidence in the financial markets and more generally has been shattered. There should be no doubt that the situation remains desperate and anything which can help to restore confidence should be tried,” he said.
Economists at PricewaterhouseCoopers are calling for a cut of at least 0.5%.
David McKeith, North West senior partner, said it was needed to ease the squeeze for UK households, stimulate growth and help get the economy back on track.
“The Bank of England Monetary Policy Committee needs to cut interest rates progressively to 3% or lower in order to prepare the economy for the recovery we hope to see in 2010,” he said.
“Significant tax increases or reductions in planned public spending growth seem likely to be needed beyond 2010, but it makes sense in the short term for the government to allow borrowing to rise in response to the economic downturn.”
PwC’s latest Economic Outlook report suggests that GDP growth will slow to 1% in 2008 and -0.5% in 2009 as the effects of the credit crunch push the UK into recession.
Consumer spending growth is also expected to turn negative at -0.5% in 2009 because of high debt levels, tighter credit conditions, falling housing wealth and rising unemployment.
