Interest rates down to 0.5 pc

The Bank of England slashed interest rates to a record low of 0.5 per cent today as it embarked on a radical move to "print" £75 billion of new money.

In a landmark decision to aggressively fight the recession, the Bank said it was starting "quantitative easing", effectively printing money, to ease credit conditions.

The 0.5 per cent cut from one per cent is the sixth cut in a row by the Monetary Policy Committee.

But it is the drastic decision to pump £75 billion of newly created money into the economy which the Bank hopes will help in the battle against recession.

The move has become necessary as the Bank is close to the zero limit below which interest rates cannot fall.

Buying

The Bank will now begin buying a range of corporate bonds and Treasury stock from commercial banks.

It will pay for these assets by creating new money, electronically, in a modern-day version of running its printing presses.

The freshly-created cash paid to the banks for these assets will be credited to their Bank of England acc-ounts. So the banks should be able to make new loans to businesses and consumers.

Lloyds TSB, Nationwide, Halifax, and Skipton Building Society all said they would be passing on the reduction in full to people on their standard variable rate, while Abbey is reducing its rate by 0.45 per cent.

Tim Sutcliffe, of Shrewsbury-based pi financial dixon sutcliffe, said: "The Bank of England is running out of options and it will not be long before they have no more interest rates cuts they can make.

"The switch to quantitative easing to manage money supply will help but only if they get the balance right - aggressive enough to encourage lending by banks but not creating too much cash to send inflation out of control.

"Clearly there are the usual winners and losers with an interest rate cut but a summer of discontent now seems inevitable regardless of this.

"With many companies going into receivership as they are forced to make good on the deficits that have now been generated in pension schemes, strike action and general discontent is on its way."

By Business Editor Amy Bould