The Bank of England’s decision to make an almost unprecedented 1.5 per cent cut in interest rates was warmly welcomed by the business community and described as the perfect Christmas present for the economy.
The bank’s Monetary Policy Committee made the announcement amid a growing clamour for a significant cut which culminated in Business Secretary Lord Mandelson suggesting the public would be disappointed if a cut was not forthcoming.
The latest move leaves the base rate at three per cent, the lowest for almost two decades and while Katie Teasdale, senior policy adviser at Birmingham Chamber of Commerce and Industry, welcomed the move, she also warned of what the cut suggested about the economy.
She said: “The huge cut in rates suggests the MPC considers the economic situation more dire than first thought. The sheer scale demonstrates the fear we now face a recession harsher than anticipated. But there will be concern by taking such a drastic measure the MPC is backing itself into a corner.”
Richard Boot, West Midlands chairman of the Institute of Directors, was more upbeat saying: “This decisive action shows that at last the Bank has acknowledged the pain that is being felt in the real economy. Inflation is yesterday’s story and the real risk is deflation for tomorrow, so this move is to be applauded.”
Chris Clifford, regional director, CBI West Midlands, said: “This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for.”
Owen Trotter, from Key Capital Partners in Birmingham, said: “It is certainly a very welcome early Christmas present. Clearly the Bank of England wanted to send out a strong signal and they have succeeded. It should be a good confidence booster.”
This sentiment was shared by Gary Cowdrill on behalf of Birmingham Forward: “This is great news for the economy because the scale of today’s cut will have real impact to both personal and business borrowers.”
Black Country business leaders welcomed the move and called on high street banks to pass the cut on to borrowers.
Black Country Chamber president Peter Mathews, said: “The banks have been slow to respond in the past but now there is a real urgency.”
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, applauded the “decisive and much-needed” cut, while Peter O’Grady, West Midlands’ spokesperson for EEF, said: “The Bank has clearly recognised that unchartered territory requires unconventional measures and has torn up its previous script.
Derek Proctor, regional director at HSBC Private Bank in the West Midlands, issued a word of warning, saying: “Those who are relying on their savings account for additional income are likely to feel a real hit in the coming weeks and months.”
Midland entreprenuer Paul Bassi, the vice-president of the Birmingham Chamber with strong ties to Icelandic bank Kaupthing, also sounded a note of caution.
“Unless the banks deliver their part of the bargain in passing on this overdue and necessary rate cut, this window of opportunity to kick-start the economy will slam shut in our faces.
“I am sure every bank will line up to guarantee they will pass on the reduction in the base rate. But many will also in the next breath seek to recover this concession by increasing the margin over base rate that they charge on borrowings. Such behaviour is not only unacceptable it is also unethical.
“Birmingham Chamber will be asking our members to tell us exactly what happens after today and we will not shrink from ‘naming and shaming’ any rogue banks who behave in this way.”