U.K. interest rate drops to new low

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Steve Chiotakis: Europe is hoping some interest rate cuts will jumpstart its economy. The Central Bank and the Bank of England have slashed rates
to nearly historic lows. From London, Stephen Beard reports.

Stephen Beard: The Bank of England has cut rates from 3 [percent] to 2 percent If they go any lower they’ll reach levels last seen here in the late 17th century — when Isaac Newton discovered gravity.

The rate cut has been welcomed by industry groups as bold, but necessary. The British economy is contracting sharply. Car sales and house prices are dropping like a stone. But some analysts question how effective the rate cuts can be.

Andrew Hilton is with the CSFI think tank. He says the commercial banks are still extremely reluctant to lend:

Andrew Hilton: They’re under terrific pressure to do so from governments around the world. But their priority at the moment is to rebuild their own book — not to go out and make new and aggressive loans.

Nevertheless, further rate cuts seem certain. Even the ultra cautious head of the Bank of England has said it may be necessary to cut them to zero.

In London, this is Stephen Beard for Marketplace.