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City experts say base rate should be cut to 1.5 per cent
HUGO DUNCAN AND JONATHAN PRYNN03.12.08
Pressure was growing today on the Bank of England to halve its base rate to an unprecedented 1.5 per cent, following more grim economic news.
City experts say only a radical 1.5 per cent cut from the current 3 per cent rate will be enough to kick-start spending on the high street, and prevent a slide into a depression.
The Bank's Monetary Policy Committee is due to reveal its latest decision on the base rate at noon tomorrow.
Accountancy firm PricewaterhouseCoopers today warned Britain will be the worst performing major world economy next year, and called for urgent action from the Bank.
John Hawksworth, head of macroeconomics at PwC, said: "This is no time for half measures. We see no reason for the Monetary Policy Committee to delay making a further one-and-a-half percentage point cut in base rates to mitigate the risks of the recession turning into a full-blown depression."
That would reduce the official cost of borrowing to its lowest level since the founding of the Bank of England in 1694.
The majority of City economists believe the Bank will sanction a cut of at least one per cent. But increasing numbers are now saying an even more dramatic move to match last month's 1.5 per cent reduction is possible.The calls came amid more dismal economic data that sent shares and the pound sliding.
By lunchtime the FTSE-100 was down 31 points at 4091 and sterling had fallen 1.8 cents to $1.473 against the dollar.
Figures from the Chartered Institute of Purchasing and Supply showed the services sector, the backbone of the British economy, contracting last month at the fastest rate since records began in 1996.
Its barometer of activity fell from 42.4 in October to 40.1 last month - the seventh consecutive month of decline.
Hetal Mehta, senior economic advisor to the Ernst & Young Item Club, said: "This is a grim set of data. With the services sector shrinking at a record pace and employment falling sharply, it is clear this recession is gathering momentum."
Figures from the high street show inflation is in rapid retreat as retailers slash prices to boost sales in the run-up to Christmas. The British Retail Consortium said shop prices last month were only 2.7 per cent higher than a year ago, down from 3 per cent in October, and a peak of 3.8 per cent in August.
Marks & Spencer has confirmed that tomorrow it will hold a second "One Day Christmas Spectacular", with a 20 per cut on all clothing, home goods and wine. It comes just two weeks after the store's last discount day, its first pre-Christmas clearance for four years.
Chief executive Sir Stuart Rose said: "We know people are feeling the pinch and we want to give them a helping hand in the run-up to Christmas."
The sale will be seen as a response to Debenhams second "price cutting bonanza", which runs from Wednesday to Friday, offering reductions of up to 20 per cent. Hundreds of West End stores are expected to offer discounts of up to 40 per cent on a traffic-free day this Saturday.
Reader views (14)
I find it extremely interesting the the 'so-called' financial experts are calling for a bak rate cut - Wasn't it those experts that got us in this position in the first place.
I have no qualms about a rate cut as I personally think it has been too high anyway, and a good idea, but it is galling to hear these financial experts baying and crying over their self imposed losses.
- Alan Massey, aberdeen UK
We dont have a mortgage or debt on credit cards. When young we worked all hours and saved our money rather than spent it. And yes husband was made redundant and we moved to the country and now farm. We dont make a vast amount of money but we dont have debts and rely on the savings we do have to add a little to our income. We live within our means so why cant others.
- Ann Wilson, London, england
The rate cuts will only have any effect if mortgage lenders are forced to pass the new rates on to all borrowers
- Adam, Harrow, UK
Current financial policy has got beyond me. Reckless lending and massively overvalued property got us into this mess. Now the aim seems to get us back there. There are as many savers as borrowers. An OAP I know owns his house outright and only receives the basic state pension. Savings income pays for the little extras in life - this has now plunged. A few months ago he enjoyed a couple of pints at his local once or twice a week - now he can only afford to buy a four pack at the supermarket. The Great has gone out of Britain!
- Michael, London
Roger & Joanna ... good that you have been saving but by God, you must be boring, selfish people! How long would you keep going if you were made redundant? There's a bigger picture than what you seem capable of seeing - there's a global recession in case you hadn't noticed. A lot of people will have been prudent but still be suffering.
- John, London
Roger, wanting to put a roof over your head isn't greed. I take it you don't lose much sleep over those less fortunate than yourself.
- Marianne, SW France
The problem isn't the interest rate, it's the banks' reluctance to lend: they're currently withdrawing overdrafts from perfectly viable businesses, and making things worse. If you punish those who do have cash, they won't put their money in the banks to be relent 8-fold, but invest somewhere with a better return, probably in an overseas currency that isn't about to crash as sterling is.
This crash has been coming for years,so Joanna's point is valid, if unfeeling.
- Mdj, Leyton, e10 london
Spot on Roger. Why bother to save, live beyond your means and the government will bail you out, be prudent and save for the bad times and you get shafted.
Seems like the ignorant looking after the ignorant.
- Harry Monk, London
interest rate cuts are meant to discourage saving. that's the whole point, its not a secret revelation.
by getting the economy moving, they mean spending.
stop hoarding for a rainy day, its here.
- Scott, London
Bye Bye British pound.......who exactly does the UK think will loan it all of the money it needs to borrow to survive at ridiculous low interest rates and a plummeting pound??? Do you think there is a reason why the £ is at record lows? If you travel to EU countries you will feel very poor indeed. I would be very very worried if I was living in the UK.
- Kr, Florence ITALY
Joanna
It doesn't sound like you are suffering too much. Perhaps you could find a more propserous investment vehicle than your building society. But as you don't like risk that is not an option. Borrowing makes the world go round, if we didn't have it there would be stagnation. It's not the fault of the borrowers, it's the lack of order and control in the market it cannot self regulate.
- Jon, london,England
lucky you, joanna!! you must pretty well off if you don't have a mortgage, don't have any debt whatsoever and are also able to save.
you should feel glad that you are not in a terrible situation where you have been made redundant. imagine having a family to care for and nowhere to turn for help. no, you'd rather moan that you have less wealth than you think you deserve. poor you.
- Bandora, london
What about us savers? Either let us have our interest tax free + a bonus paid for by the taxpayer or increase interest rates. Borrowers shouldn't have been so greedy so why should I bail them out?
- Roger Slade, Winchester, Hampshire, England
and once again it will be the person who saves his money, doesn't have a mortgage and never goes into debt on credit cards that will suffer, just to compensate those who live beyond their means
- Joanna Carling, london england
