Will Rate Cuts Boost Business?

Small Business News – 3rd December 2007

With the Bank of England’s Monetary Policy Committee due to meet to announce the interest rate on Thursday 6th December, pressure is mounting on the Bank of England to cut interest rates ahead of an expected downturn in the economy next year.

One economist, Patrick Minford, a former advisor to Maggie Thatcher & the Treasury and now professor at Cardiff Business School, has even suggested an interest rate slash of as much as 0.75%.

Another expert, Tim Congdon of the London School of Economics, has called for a 0.5% cut in interest rates. Both economists believe that the MPC is taking too long to decide that what has already happened is not good for business.

With rates at 5.75% since July, a number of economic bodies have railed the MPC for a drop and the latest voices are all calling for the rate cut in order to boost business. However, some of the groups that called for cuts over the last few months believe that a modest 0.25% rate cut will help for fear of inflationary pressures.

With oil prices currently affecting inflation, the rising price of goods coming out of China and increasingly expensive food costs it might be wise for the MPC to focus on keeping inflation in check and a rate cut might not be the answer.

The short term outlook, as Mervyn King of the BofE said, is going to be uncomfortable, so what will Thursday’s pre-Christmas decision be? One of staying put, raising or cutting the interest rate?

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