Firms call for urgent interest rate cut

Firms call for urgent interest rate cut

Views BlogsLiverpool BlogsCommentLettersSend a Story Video or PictureTHE country economy faces a classic double bind. The Bank of England Monetary Policy Committee meets tomorrow to set interest rates, but whatever action it decides to take could prove to be wrong.

On one hand, there are growing fears of recession, resulting in calls for an urgent and larger than normal cut in interest rates.

On the other, raw material and energy prices are rising alarmingly, pushing up inflation and placing a conflicting pressure on the MPC to keep rates high.

The Bank, after all, is charged with the task of keeping inflation beneath 2%.

The picture is further complicated by what has happened in the United States in the past fortnight. America Federal Reserve has cut interest rates twice in the past fortnight. The two cuts total 1.25%, a dramatic gesture that seems unimaginable over here.

Yet the drama in America has inspired one local economist to call for a big cut to rates in Britain.

Peter Stoney, honorary senior fellow in economics at the University of Liverpool, has followed the fortunes of Merseyside economy for three decades. He is also part of forecasting group, Liverpool Macroeconomics.

He said: have been calling for a halfpercent cut since before Christmas, because there is a threat of a downturn. To prevent it, we need a cut. The risks of missing the MPC inflation target are very small.

prices have been coming back down and the effect of the other commodities will be negligible. The Bank should take preemptive action to reduce interest rates now. We should take note of what the Fed has done in the US.

idea that we have decoupled from the US economy is quite absurd. The US accounts for 25% of world trade and we all depend on it for a large part of our export trade. concern is the potential impact of the credit crunch on the ability of businesses to borrow to finance investment. Tighter bank lending would harm the economy and the jobs market.

However, Michael Cox, a partner at business advisory firm Grant Thornton, believes the credit crunch isn the problem. He said: are still bankers wanting to lend. Their criteria may be a bit tighter, but there is still money out there for wellmanaged, profitable businesses.

have not had a single client ring up and say their bankers are refusing to renew facilities. In fact, I have even heard of one or two who have cut the price of borrowing. As for general recession, Mr Cox said: economy is not that strong that inflation will let rip if interest rates are cut.