Interest rates cut to 2%

INTEREST rates were today slashed by a third to 2% – the lowest level since 1951.

The fresh cut came a month after the dramatic 1.5% reduction to 3% and amid worsening economic gloom in the economy.

Unemployment is rising, house prices are continuing to slide, and economists are warning of a steep recession for the next 12 months.

Financial services, maufacturers and retail businesses are all feeling the pinch. Sales of new cars fell  36.8% last month – the steepest decline in nearly 30 years, the Society of Motor Manufacturers said today.

And there was another casualty of the recession on the high street as homewares chain The Pier – which has 31 stores including at the Trafford Centre and 17 concessions across the UK – was placed in administration. 

Business leaders welcomed the rate cut.

Ilona Krohn, principal economic adviser at Greater Manchester Chamber, said: “This was the right decision. The economy is stalling and there have been some quite dramatic policy decisions made globally in reaction to this.

“This cut in interest rates will ensure that we continue to move in the right direction towards tackling the downturn. We hope that the banks will now pass this cut onto customers.”

Pat Loftus, practice senior partner, Deloitte North West, said: “This additional 1% was necessary to boost the economy, particularly in light of further job losses in the news this week, and alongside the continued gloomy outlook in the retail and housing sectors.

“Although it is still a difficult time for many businesses, banks are being subjected to government pressure and are being encouraged to pass on the reductions. That said, I still think we need further interest rate cuts in 2009.”

Simon Allport, Manchester senior partner at Ernst & Young, said The Bank of England has given the economy the right medicine at the right time.

“Anything less than a 1% cut would have been a missed opportunity. This recession is gathering pace and another significant boost was desperately needed.

“Manufacturing and services surveys this week have confirmed that the recession is gathering momentum and that in the current quarter the economy will almost certainly contract by more than the 0.5% seen in the third quarter. At the same time, commodity prices have collapsed and inflation is set to fall dramatically; the dire prospect of deflation is becoming more likely.”

Graeme Leach, chief economist at the IoD said:“The MPC decision is bold but necessary. The MPC is clearly taking the view that the longer deep interest rate cuts are delayed the worse the recession is likely to become. The MPC still has some ammunition left but not a lot.”

Ian McCafferty, CBI Chief Economic Adviser said: “The economy needs a significant monetary stimulus and the Bank has clearly decided this will be best achieved by another big cut in interest rates. What is critical for business and consumers alike is that this reduction is passed on.

Manchester recruitment firm Sellick Partnership said the cut could help struggling legal practices.

Hannah Kewley, director of legal said: “The latest cut in interest rates will be a significant help to law firms suffering from a loss in conveyancing work due to the housing market slump and will allow them to invest in the areas of their business that are thriving such as litigation, insolvency and employment law.”