IoD response to interest rates decision

Dated: 5 February 2009

Commenting on the Bank of England’s decision to cut interest rates by 50 basis points, IoD Chief Economist Graeme Leach said:

“The half-point cut means we’re getting close to the last hurrah for interest rates, before the quantitative easing begins. The interest rate transmission mechanism is clearly impaired but it is not yet kaput. In our view the MPC should continue to push interest rates down towards zero before it embarks on quantitative easing. Today’s reduction, if passed on to borrowers, will help boost household and corporate cash flows. To the extent that it is not passed on it will boost margins and aid bank re-capitalisation. Clearly the effectiveness of interest rates is fading with each passing cut, but we also need to be very careful both with how quantitative easing is to be applied and the exit strategy to be adopted. Quantitative easing is not a free lunch.”

ENDS

Contact Points

Edwin Morgan
Media Relations Manager
Institute of Directors, 116 Pall Mall, London SW1Y 5ED
Tel: +44 (0)20 7451 3392
Mob: +44 (0)7814 386 243
Email: edwin.morgan@iod.com
Website: www.iod.com/policy

Notes to editors

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