...almost. So the authorities have shaved another 0.5% off rates to 'help the economy'. It certainly doesn't help savers (who are the only people with money to spend) and it must be of limited help to borrowers too (and in any case, I'd be putting any
spare cash this did generate either on one side to meet rising repayments later, or reducing my debts, not spending it). Furthermore, it won't help the banks, except for those that pass on less of the 0.5% to borrowers but reduces savings rate by the full
amount - that'll be all of them, then.
Maybe the 'help' is in convincing those with money that there's no reason to save anymore, so go out and spend it. Certainly, a saver has to have that thought in the back of the mind. However, there are two other powerful reasons for hanging on to the
1) to make sure you have enough to pay the crippling taxes that are coming down the line in 2-3 years time.
2) to make sure you have a buffer in case you lose your job.
...and a third if you're a pensioner - you daren't spend it all at once, as you have to make the capital last as long as you can, now you're not getting any return that you can spend.
I suppose they can also comfort themselves in the expectation that, whatever capital they can keep hold of will start earning interest - possibly quite a lot of it - later this year when they have to slam the rates up to choke off rampant inflation which,
because of the collapsing exchange rate, will probably follow.
The Manufacturers' Association, the EEF has instantly indicated that this rate cut wasn't enough, and so has the Ernst and Young Item Club. Why, if the cutting of rates from 5% to 2% did nothing, they think that any more rates cuts will make a difference
I don't know. All we are doing now is punishing still further those who have been careful with their money and not blasted the shops in the past.
So no, the rate cut won't make a difference, except probably in a bad way. The trouble with the decision making process on all of this is that they look at only the bigger picture. They're not in the minds of the people they rely on to actually react and
therefore don't understand properly what each group's response will be. What we need going forward is not just a group of high earners sitting in a room decising these things off the back of a bit of data, but input from representative groups of consumers,
companies and the like, who will explain what they believe the impact will be on each.
Will that ever happen?