Half Pointless

I really do not understand the thinking behind the Bank of England's latest 50bp cut.

Lower interest rates will not, in my opinion, help that much (if at all). They may even be counterproductive. Each further cut must have less and less of an effect for technical and practical reasons.

In any case, if lower rates were going to produce the desired effect then surely 3% in the last three months would have done the trick. Most importantly, there simply has been no time to assess the impact of these dramatic cuts, or indeed of many of the measures put in place in this or other majjot economies.

Lastly, if they think that 5% to 2% hasn't worked (including 1% just a month ago), why do they think a further 0.5% will now help ? They should in that case have cut to zero and got it over with.

So the only reason for cutting now is that they intended to cut all along, and they want to be seen to be doing something.

There is no sense is just reacting to the continuing worsening of the economic conditions - what is happening now is simply the inevitable follow through on what has already happened.

There needs to be a better reason for the cuts than just the assumption that it will somehow fix the current symptons.

It is true that for some people, the effect of the cut will be to increase their monthly income.

However, this is only the case for borrowers, and then only if they have a variable rate mortgage, and then only if their lender passes on the cut (which there are sound reasons not to) and even then there is little reason to assume they will choose to consume more with the saving, especially if their job is in jeopardy (which it is).

A direct tax subsidy on mortgages would have been better in that case, and less arbitrary.

There is little practical relationship between the bank's official rate and the price of many forms of personal or commercial credit and, especially, there is little reason to suppose the lowering of the rate will create credit appetite - either by lenders (why should they lend ?) or borrowers (why should they borrow, and by the way, why does the Government want them to borrow ?)

I would think a much more suitable solution would be for the Government to lend (and provide other liquidity) directly to businesses through a nationalised institution set up for that purpose rather than trying to "push string" by making the banks do this job when it makes sense for them to do the opposite.

This might, of course, become a moot distinction as I would expect a very significant possibility of full nationalisation of the banks soon enough anyway.

Meanwhile, although it will still make little sense, I imagine we can expect to see 0.5% official rates later this year.