The Bank of England's storm warning

If a 1.5% cut in interest rates doesn’t grab your attention, then the fact that they are now at their lowest level for more than 50 years will.
But that’s not where the real story lies.
The statement that the Bank of England issued alongside its interest rate decision laid bare the full scale of the challenge now facing our economy.
“There has been a very marked deterioration in the outlook for economic activity at home and abroad,” it said.
On its own, that might not sound too serious. But put it alongside a raft of other plunging economic indicators and you have what amounts to a storm warning.
Today’s decision is a blunt acknowledgement that High Street banks are still not in a position to lend more to businesses and homeowners.
As I said in a blog yesterday, there are increasing signs that banks are losing increasing sums of money on existing loans – and that’s one of the key reasons why they are reluctant to turn on the tap for new money.
The Bank of England realised that unless it made a massive cut there was no likelihood of a significant fall in the rates you and me actually get charged for borrowing.
Now that the Bank of England has taken a walloping great axe to the rate it charges banks, will they pass it on to us?
Some of it, yes, all of it no. Lloyds-TSB had to because it had already said it was committed to a standard rate no more than 2% above the Bank of England’s rate. And mortgages on existing ‘tracker’ rates are, of course, guaranteed to fall.
But the decision of some lenders to actually put up rates in the run-up to the decision told its own sorry story.
Ian Rowling, chief executive of The Nottingham Building Society, told me a few minutes after today’s rate cut that they would not be making a decision until later in the month.
A 1.5% cut in their rates seems unlikely, with Mr Rowling pointing out that The Nottingham is already having to set aside extra money for a bale-out fund set up in the wake of the banking collapse – a collapse, he points out, brought on by a risky strategy The Nottingham had deliberately steered clear of.
Borrowing will get cheaper. But it doesn’t change the fact that the finances of businesses and consumers are already in trouble.
The economic storm is now rolling, and it will sweep away some businesses with it. For those still standing, The Bank of England has just thrown up the biggest umbrella it can find.