It appears the Monetary Policy Committee is considering cutting the Bank of England’s base rate from its current low level of 0.75 per cent. It’s hard to see what savings might be discouraged by this or who might be encouraged to borrow extra.
Any economic effects must depend on reducing the exchange rate or on artificially boosting asset prices. If this policy does boost demand, which is by no means certain, will it not mean that when the inevitable asset price retrenchment takes place, the fall is from a greater height and hence will be more painful?
Douglas McWilliams, Deputy chairman, Centre for Economics and Business Research
Editor’s reply
Dear Douglas
Some at the Bank of England have been getting overly troubled by signs suggesting the economy is cooling, and are talking of cutting rates to 0.5 per cent. But this would be a mistake.
First, it would make little difference to the economy with rates so low anyway. Rather, it would send a crisis message about Britain to the world. Second, it is far too early to gauge the “Boris bounce”. Since his election, anecdotal evidence has it that the property market is on the up and businesses are doing deals again. A recovery could be round the corner; we just don’t know. The sooner we get back to interest rates that make saving and investing worthwhile, the better. The decision on January 30 will be Mark Carney’s last as Governor of the Bank. Let’s hope he and his committee get this one right.
Jim Armitage, City Editor