Small businesses around the country may be in for a little bit more luck as the Bank of England has announced that they are preparing to slash interest rates even further in an attempt to avoid having the country caught up too much in a recession.

The move would be a record breaking drop as the Bank of England has never had interest rates lower than two per cent since the Bank was first opened 315 years ago.  However, the rates have dropped from 5 per cent to 2 per cent over the last 3 months due to action by the Monetary Policy Committee.

Some analysts are even predicting that the Bank will cut its 2 per cent interest rate by a whole per cent in the coming move.  If the cut does indeed come about it will be the fourth interest rate cut by the Bank of England since October.

The move will come as unemployment rates have recently soared, especially due to the collapse of Woolworths and Zavvi and the 1,000 job cuts made by Marks and Spencer yesterday.

“For most of its life, the Monetary Policy Committee has set interest rates as a trade-off between growth on the one hand and inflation on the other. Now, however, both are pointing in the same direction as the recession deepens and inflation collapses.  Against this background, there is no reason not to keep cutting interest rates,” says the chief economist at KPMG, Andrew Smith.

Analysts are claiming that the average saver in Britain will lose out on £300 worth of savings a year due to the interest rate cuts that have been made.  The figure is based on a saver who has £10,000 deposited into their account.

“Further cuts in interest rates can only have a muted effect on lending. Other instruments, including quantitative easing and Government loan guarantees, are increasingly taking centre stage,” claims Ruth Lea of Arbuthnot Banking Group.

The Chancellor is also looking at other methods in order to save the country from the perils of a recession by printing money.  The Chancellor, along with the support of the Governor of the Bank of England, Mervyn King, is looking to expand the country’s money supply by billions with the outlook to use these billions to possibly pay off government or commercial debt.

However, the Shadow Chancellor, George Osborne has announced how dangerous such a move could be for the country.  “The very fact that the Treasury is speculating about printing money shows that Gordon Brown has led Britain to the brink of bankruptcy.

“Printing money is the last resort of desperate governments when all other policies have failed. It can’t be ruled out as a last resort but risks losing control of inflation and all the economic problems that high inflation brings. And to float the idea carelessly is irresponsible in the extreme as it risks losing the confidence of international markets,” said Osborne. 

Darling has warned that Britain is “far from through” the recession.

 

 

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