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Stuart Porteous, RBS head of group economics:</p>
"Few people – and certainly not the MPC – question the challenges the UK faces in 2009. As rates head towards zero, policy makers will be forced to embark on ever more unorthodox measures to get the economy moving again. Listen carefully and you can almost hear the printing presses being cranked up."
Stephen Gifford, chief economist at Grant Thornton:</p>
"This 0.5% cut is another major step intended to stimulate the economy out of recession. But the MPC's monthly cutting of rates to an all-time low has so far done little to get the economy back on track. It has provided some breathing space for some lucky borrowers with tracker rates, but it has not had the desired effect on bank lending or helped consumers to start spending again.
"The Bank of England is now close to running out of options. If these latest cuts do not work, the only path left is for quantitative easing, where the Bank effectively prints money and uses this to buy up long-term assets in the market place."
"Quantitative easing is a high-risk strategy riddled with economic, practical and political problems. There is the serious danger that inflation will rocket in two years' time, as policy makers have very little experience of implementing this policy and will be unable to calibrate how much easing is appropriate. It will also undermine the independence of the Bank of England, as the government would have to work closely with the Bank to make this happen, fundamentally changing the function of the MPC."
"Recent reports from the high street of a poor Christmas trading period and of the continuing battering in the property market will do little to boost confidence in these uncertain times and show that the population at large is waiting for more radical steps to bolster the economy before spenders are back out in full force."
James Knightley, economist at ING:</p>
"With the domestic economy in a severe recession and with key export markets suffering a similar fate, we expect that GDP will contract close to 3% in 2009, while inflation looks set to move negative in year-on-year terms from the middle of the year.
"Falling petrol prices, anticipated large falls in utility bills, the VAT tax cut and excess capacity in the economy should more than offset the inflationary stimulus from the 30% fall in sterling. So with central bankers becoming increasingly concerned about deflation expectations taking hold, we expect ongoing policy easing. We look for UK rates to fall to 0.5% by March, with quantitative easing being introduced shortly thereafter."
David Buik at BGC Partners:</p>
"Is a 50 basis point cut to 1.5% enough? Of course it is! Interest rates at these levels in isolation are meaningless without sensible fiscal stimulus packages which are currently unavailable here in the UK and some aggressive quantitative easing. If the Treasury aggressively buys commercial paper, collateralised debt, gilts and maybe even equities, this initiative could well unclog the banks' balance sheets, thus allowing them to perform their function properly – to lend money to the consumer, industry and commerce.
"The Bank of England has done a brilliant job, but it feels as if the Treasury has grabbed the reins. Such a pity the government has been reactive, looking over its shoulders in the direction of the US, rather than being proactive."
TUC general secretary Brendan Barber:</p>
"Though not unexpected, this is a welcome move. Banks and building societies must now pass this cut on to business and mortgage borrowers.
"But this cut will not fix the banking system and get banks lending again. With more job losses being announced every day, the government and the Bank of England must stand ready to take further action to boost the economy and make credit available once more, such as action to take out the toxic debts that are still hobbling the financial system."
Ian McCafferty, CBI chief economic adviser:
"This more modest interest rate cut reflects the Bank's recognition that interest rate reductions on their own cannot restore credit flows, the most important factor determining the prospects for the economy.
"However, this move to support business and consumer confidence will be welcomed. If credit flows can be restarted, the monetary stimulus now in the pipeline is significant, especially when the fall in the pound is taken into consideration. A more gradualist approach to rate setting is likely in the coming months."
David Kern, chief economist at the British Chambers of Commerce:</p>
"British business is disappointed by the MPC's decision to cut interest rates by just 0.5%. We believe it is an inadequate reaction to the rapid worsening in economic circumstances.
"The recent downward revision in GDP figures, coupled with further unemployment increases and rapid declines in house prices, justified a full 1% cut in rates, in line with the BCC's recommendations.
"The outlook is dire, and the MPC must act forcefully. In order to ensure that the economy does not slide into a prolonged depression, we urge the MPC to reduce interest rates to almost zero in the next few months. It must also supplement lower interest rates with vigorous quantitative easing."
Steve Radley, chief economist at EEF, the manufacturers' organisation:</p>
"This year was already going to be a serious challenge for manufacturers but all the indications are that the downturn is gathering pace at home and abroad. Whilst the Bank has indicated it wanted to take a measured approach to cutting rates, this is too timid to deal with the current situation. Given the expectation that rates will be cut again, the question has to be asked: 'Why wait?'"
John Wright, chairman of the Federation of Small Businesses:</p>
"The Federation of Small Businesses welcomes the cut. But despite previous cuts, around a third of our members are still complaining about poor access to affordable finance.
"With rates now at their lowest ever level, small businesses are more concerned about access to money. The FSB would like a cast-iron guarantee that the banks will not only pass on the interest rate cuts, but pass on the money to the small businesses that need it.
"The small business sector is the sector to see the UK out of recession in 2009 and into economic recovery, but this can only work if credit lines start flowing to viable businesses again."
Edward Menashy, chief economist at Charles Stanley stockbrokers:</p>
"Past reductions in interest rates have not been fully passed on by the banks to their customers and the Bank of England's latest credit conditions survey found that lenders had reduced the availability of credit over the past three months.
"Whilst the credit crunch continues to blunt the effectiveness of interest rate reductions, the MPC will be tempted to follow the US Federal Reserve's example and pursue quantitative easing or policies which will increase the quantity of money in the economy through the purchase of a variety of assets.
"As a result of the cuts in VAT, falling energy prices and lower mortgage costs, the general expectation is that the Retail Price Index measure of inflation will fall below zero in the course of 2009. The trough of that decline is expected around the third quarter of 2009. Thereafter both inflation and interest rates can be expected to rise.
"Clients seeking to maximise income should consider corporate bonds, whilst high taxpayers seeking to protect their capital should consider short-dated index-linked gilts."
Alan Tomlinson, a partner at licensed insolvency practitioners Tomlinson's:</p>
"Today's cut will of course inject some confidence into the business community, but for companies that are already struggling it will be of no real help. Many of the companies we are advising at present have fundamental problems such as sharp drops in turnover, large debts and ever weaker pricing, which can't be rectified by lower rates. For many companies out there, this will be too little, too late."
David Smith, senior partner at Dreweatt Neate estate agents:</p>
"As far as the property market is concerned, until lenders relax their criteria the Bank could just as well cut rates to zero but it would still be flogging a dead horse. It's not the rate at which money can be borrowed that matters so much right now, it's the supply of money – and that supply simply isn't there."
Andrew Montlake, partner at independent mortgage broker Cobalt Capital:</p>
"If you're on a tracker mortgage and your lender hasn't triggered its collar, then you'll be knocking back the last of the Christmas sherry today. Likewise if you're on a standard variable rate and your lender passes on all, or even some, of the cut.
"What matters most, though, is if and how this latest cut will affect the dynamic of lending generally. Will the banks cut rates on new products, is there any scope to do this anyway given the interests of savers, will the availability of mortgages increase and could the latest cut encourage potential buyers to commit to a sale? There are lots of questions and in the weeks ahead we will see the answers."
John Phillips, financial services director at estate agents Kinleigh Folkard & Hayward:</p>
"Although the Bank of England base rate has dropped, we will not see mortgage rates drop to anywhere near that amount. Lenders are likely to drop their rates by only 0.1 or 0.2%.
"Whilst the interest rate cut will be welcomed by mortgage holders, it is still crucial that lenders reassess loan-to-value ratios. We are starting to see lenders creep back towards 90% products, but these are still few and far between. The start of the new year will see lenders releasing new mortgage products onto the market, and the latest drop in interest rates may well influence the products that become available in coming weeks."
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