Page last updated at 09:41 GMT, Wednesday, 4 February 2009

'Not much point' in cutting rates

A High Street
The NIESR predicts a 3.8% drop in consumer spending in 2009

As the Bank of England begins its rate-setting meeting, an influential think-tank has said there was "not very much point" to the last cut.

Martin Weale of the National Institute of Economic and Social Research (NIESR) said other measures such as the Bank buying corporate bonds would be better.

It came as the NIESR predicted the UK economy would shrink by 2.7% in 2009, its worst performance for 60 years.

The Bank is widely expected to cut rates from 1.5% to 1% on Thursday.

'Feeble recovery'

The latest prediction by the NIESR of the decline of a 2.7% decline in the economy was a big cut from its previous forecast from October, when it was only saying it would shrink by 0.9%.

The think-tank predicted the recovery would begin in the third quarter of 2009, but said it would be "feeble", with growth of just 0.6% in 2010.

It said the economy would be hit by a 3.8% fall in consumer spending and 8.8% drop in business investment this year.

Rate cuts

But the think tank also warned that the contraction of credit meant that rate cuts by the Bank of England were now ineffective in stemming the downturn.

"I felt the last interest rate cut had not very much point to it," Mr Weale said.

He suggested that the central bank should make more use of measures such as buying corporate bonds, the framework for which was set up last week.

"I can't see any reason why conventional interest rate changes should be preferred to this sort of policy," Mr Weale said.

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