Interest rates slashed
March 5th, 2009 by James Baggott
INTEREST rates have been slashed to an all-time low of 0.5 per cent by the Bank of England.
As well as the drastic cut, the bank will also boost the money supply to help revive the economy.
The latest cut is the sixth since October and follows January’s cut to one per cent.
The bank has said it will now expand the money in the system by £75bn in an attempt to boost bank lending – something that is critical to the car industry.
This policy – called quantitative easing – is untried in the UK but it is hoped it will have a marked effect. The process effectively increases money in the circulation.
The BBC has explained quantitative easing very well.
‘It is sometimes incorrectly referred to as printing money, but the Bank will not expand the supply of money by making new banknotes,’ reported the BBC.
‘Instead, it will buy assets – such as government securities and corporate bonds. But as it will not borrow to fund the purchases, it is creating new money.’
With car sales figures down 22 per cent in February – as we reported earlier – dealers will be hoping these moves start to make a difference.