Debt Advice Bureau Reaction to Bank of England Cut in Base Rate to 0.5 Percent and Quantatitive Easing Announcement.
Published Thursday March 5th 2009.Speaking after today's announcement by the Bank of England Monetary Policy Committee which reduced the Base Rate by 50 basis points to a new all-time low of 0.5%, Debt Advice Bureau director Stephen Rose said:
"Today's cut is pointless. I cannot see how reducing the base rate to 0.5 percent does the economy any net good. Savers will be punished once more and only a minority of those with debts on variable rates will see any marginal benefit.
"Most business and consumer savings rates were paying less than CPI inflation prior to today's cut. In these expenditure-sensitive times, this cut will certainly not encourage spending.
"It is possible that the cut will increase the rate of liquidation of savings held with banks. After all, why take the risk of lending your money to a 'bank' if the reward for that risk verges on the non-existent? Under such circumstances the Bank of Mattress may appear a safer bet. The return may be slightly less but you can withdraw your money 24/7 and there is at least one branch in every home.
"A 0.5 percent base rate might be of use if mortgage rates were that low and if credit was easily accessible. However, they're not and it isn't. Which begs the question, 'who do the rate cuts really benefit?' It is evidently not savers and clearly only a limited number of borrowers".
As for the announced £75bn Asset Purchase Programme, quantitative easing (QE), Mr. Rose said,
"Quantitative easing has never worked. To think the solution to the problems caused by excessive credit creation, the printing of money, is quantitative easing, the printing of money, is extremely dangerous. Since inflation is caused by increasing the money supply, printing money, it is difficult to see how a policy of QE can result in anything but the inevitable decline of the pound's purchasing power.
"Whilst it is possible that a case can be made for helping those areas of the commercial paper market which have a dearth of buyers, using QE to manipulate Gilt prices by creating false demand and driving down yields is wrong. Not only does it open up a hyperinflationary can of worms, it makes savers and investors pay more for those Gilts than they otherwise should and forces them to take on increased risk for less reward. It is difficult to see how such QE-induced manipulations will end in anything but misery for the general public and savers in particular".
# # #
Notes to Editors:
1. Debt Advice Bureau is a not-for-profit debt advisory service which has been provided free and impartial debt advice since 1999 and on the web since 2001. It is a remote service providing advice primarily by internet, as well as by phone and post.
Contact details:
Name: Stephen Rose
Phone: 08700 11 11 13
Alternatively, you can use the form below: