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Rate cut will be 'less and less effective'

Mar 06 2009

The interest rate cut will be less and less effective in stimulating the economy and is unlikely to have a big impact on the availability of credit to businesses, according to the Confederation of British Industry (CBI).

Ian McCafferty, chief economist at the organisation, says the 50 basis point cut made yesterday by the Bank of England will support business and consumer confidence but will not improve cashflow.

The Bank's Monetary Policy Committee (MPC) also released plans for quantitative easing alongside the rate cut, saying it wants to pump £75 billion into the economy.

McCafferty supports these proposals, saying: 'A swift move towards quantitative easing as a way of boosting money supply and lending directly is now the MPC's best bet for supporting the economy and getting credit flowing again.'

The British Chambers of Commerce adds that the quantitative easing must be 'forceful' in order to calm markets and boost confidence in sterling.

David Kern, chief economist at the organisation, says businesses need to be reassured that further measures on monetary policy will remain 'expansionary', by increasing the amount of money available.

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