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Rate cuts will not work, says top boss
Simon English and Jonathan Prynn8 Jan 2009
ONE of Britain's top high street bosses today warned that interest rate cuts are failing to drag the UK out of recession.
Sainsbury's chief executive Justin King said the dearth of lending by banks is a bigger problem than the cost of borrowing.
Mr King was speaking as the Bank of England's Monetary Policy Committee announced its latest decision on its base rate.
He told the Standard: "It is up to the Bank of England to do what they think is right, but our suppliers are saying that what they have to pay to borrow is not the issue, it is that there is no money being lent in the first place."
The Standard revealed yesterday that Chancellor Alistair Darling is looking at a range of alternative "levers" to head off a slide into a prolonged recession including printing more money.
Sainsbury's unveiled figures showing it enjoyed its best ever Christmas with sales up 4.8 per cent.
Mr King said banks were being told by regulators to lend less but this was causing untold damage to the economy.
He said: "The banks are doing what is required of them by the Financial Services Authority, which is to lend less money and bolster their balance sheets. The Government needs to focus on improving liquidity."
Increasing numbers of commentators are questioning the repeated interest rate cuts as home owners are saving, not spending, the money they gain.
Reader views (11)
He is right. We have crashed under a heavy load of taxation, weak oversight and a very weak currency this has led to this recession.
- Jacqueline, Hampstead, London, 08/01/2009 19:19
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Brown always describes his own policies as 'the right thing to do... etc', when announced. Always... always these are incompetent, have the opposite effect, or are huge wastes of money, or all of the above.
This man got his reputation by self promotion. His performance is appalling. At the boom peak, asset prioces rose by 30% pa, and he boasted 'I ended boom and bust'. A draft novel character would be thrown out as impossibly stupid.
Brown has presided over an vast increase in boom and bust cycle. He hiked the debt for state taxpayer and private sector beyond historic levels. Well past the level where Labour needed IMF, before his off balance sheet debts are counted.
The UK no longer passes the tests for entry to the EU as our economy is in worse condition than Portugal, Italy, Greece and the worst in Europe. Brown is a disaster.
Some niave economists and commentators are still conned by Brown as he speaks like a dour scots banker. What he says is complete rubbish. His attitude to national finance is shown by savings. 12% savings ratio 1997, now 0%. Brown steals £5 bn a year from savings and ruined the UK savings and pensions industry to fund his annual spending on public sector pay and welfare to buy votes.
Brown has no interest in building a prosperous safe UK. Brown's agenda is to a huge voting block depending on taxpayers money. He is the worst PM for 100 years.
- Al, fife, 08/01/2009 18:36
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As a "cash positive" person I feel I'm being penalised for being prudent, if only I had leapt into a mortgage I couldn't really afford like everyone else, I'd have the government bending over backwards to use others people money to bail me out. I also don't agree with Justin King - if were going to have sustainable economy going forward then its one that has to be able to operate without easy credit on tap. This applies to both companies and individuals.
- Paul Campbell, swindon, wiltshire, 08/01/2009 17:56
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Like the New year gift of inflation busting rail price increases, the Government seems mnore concerned in supporting company profit margins than act in the interest of the people who elected them, and to whom they serve.
The reason why these rate cuts are not working is because the Government is turning a blind eye to flagrant profiteering as cuts are not passed on to borrowers, but are to savers who need to save, though perhaps not as much as the banks need their money.
As the taxpayer now has a significant interest in UK banks, only a complete fool would fail to see the opportunity available to bring banks around to an alien strategy of working for the greater good of the economy than the narrow short term interests of shareholders.
So far, the only plans being provided by the so called industry leaders, is slashing jobs and hoarding cash. Supported by Government, this is unacceptable
- John Bloomfield, Twickenham, 08/01/2009 12:24
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I wonder if Andy Hornby, formerly of HBOS, formerly of ASDA, would like to add anything to Justin's incisive economic analysis? On second thought, maybe grocers just aren't the best choice for advice on banking.
- Bloke, London, 08/01/2009 11:51
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This is not a little recession but the start of a 10 year depression. Denying it wont make it go away.
Asset booms end with busts, huge asset booms lead to depressions.
Debts have to be paid or written off. Get used to it.
- Dave Davies, Basingstoke, 08/01/2009 11:37
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Only tax cuts really work but Crash Gordon has wasted all money and now cannot make the economy to work again. There just is no money left in the kitty now that we REALLY need it!
- Peteo, London, NW1, 08/01/2009 11:02
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Quite correct.
Also by forcing savers to look elsewhere to get a return on their money. Withdrawals from banks will be having the opposite effect to that desired because their capital base is weakened. This means the sensible thing for a bank to do is to call in loans and lend less money.
Regulators need to look at the whole picture and realise that even lower rates now are a total waste of time.
- Harry H, London UK, 08/01/2009 10:42
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How refreshing to hear a Chief Executive of a major UK company finally come out with the truth and not propagate Gordon Brown's deceit and obfuscation.
- Bingham Macnamara, lymington, uk, 08/01/2009 10:40
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Absolutely correct. There is little point in future rate cuts. The focus must now be on increasing liquidity back into the market place, through encouraging banks to start lending.
- Gazza, england, 08/01/2009 10:39
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You would think with all the over paid consultants BROWN has at his disposal, there would be a modicum of intelligence. So far, things are only getting worse through his policies. Darling has his hands tied through control freak BROWN and will be the scapegoat.
God help everyone !!! We're in meltdown and the only thing BROWN is interested in, is keeping the keys to No. 10 no matter whatever the damage.
- Alec, West London, 08/01/2009 10:35
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