Bank slashes interest rates to 3%, retailers hail decision

Thursday, 06 November 2008

The Bank of England (BoE) has reduced the base rate of interest by one-and-a-half percentage points to 3%, its lowest level for over 50 years, in an effort to stimulate the economy.

British Retail Consortium chief executive Stephen Robertson called the drop a "shock tactic" that could get the country's economy moving in the right direction.

Noting a "downward shift in prospects for inflation", the bank said the economy both in the UK and abroad is deteriorating.

Spending has been restricted because of tighter credit conditions, it added, while people's budgets have been hit by the current economic situation.

Robertson said: "The Bank has rightly decided bold and decisive action now will have more impact than a staggered downward journey."

He added that consumers will be given more confidence to spend during the Christmas period, a trend that could be invaluable to retailers at an important time.

Banks will be encouraged to lower their own rates by the large cut, Robertson added.

The move came after retailers had asked for a bold move from the BoE's Monetary Policy Committee (MPC), becuase annual food price inflation had dipped sharply.

The Bank's MPC said that its inflation targets have been revised downwards, and if current interest rates are maintained, inflation targets could be undershot.

Asda has also today welcomed the decision to cut rates.

Last month, the BoE made an emergency move to cut interest rates from 5% to 4.5%, as a direct result of turmoil in the financial markets.

Will the move mean that confidence is boosted and more shoppers enter the retail sector? Have your say in the forums or make a comment below.