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Thursday, 6 February, 2003, 18:58 GMT
The Bank's interest rate gamble


The Bank of England has surprised City analysts by cutting interest rates by one quarter of a percentage point. After 14 months on hold, rates have been cut to 3.75%, taking borrowing costs to their lowest level since 1955. This is Evan Davis's reaction.

The Bank of England's move has been described as a bit of a gamble - and it is.

What do lower interest rates do? They encourage us to borrow, they encourage us to go to the shops and spend rather than save, and they encourage us to spend more on our houses.

Is that what our economy needs? Probably not.

What the Bank was doing was saying we need a boost now, given what's happening in the market and the UK's struggling manufacturing sector - the two bits of the economy that are really suffering.

A risk worth taking?

The risk is that if consumers overdo it on the spending front there could be a nasty hangover later when people have to start paying their bills.

But the Bank thought that was a risk worth taking

Could rates go any lower? They certainly could.

The Bank will be hoping that consumer spending does not suddenly crash.

If it does then the Bank will really start worrying and will go on lowering interest rates to turn what could be a crash into merely a gentle slowdown.

See also:

06 Feb 03 | Business
07 Feb 03 | Business
06 Feb 03 | Business
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