Britons uneasy about government's new monetary policy

Special Report:Global Financial Crisis

by Wang Dongying

LONDON, March 6 (Chinese media) -- The Bank of England (BoE) on Thursday once again slashed its interest rate to a new all time low and planned to pump a huge amount of money into the country's banking system to shore up its ailing economy.

The rate drop by half a percentage point to a record low of 0.5percent is the fifth cut in Britain since October 2008.

The public, however, seems to have less confidence in the effectiveness of the government's measures. The rate cut was also overshadowed by its move to begin so called quantitative easing, or "printing money" to put it in simple term.

SAVERS LOSING INTERESTS IN INVESTMENT

House buyers may be pleased with the rate cut unless they are on fixed-rate mortgages. But savers tend to be increasingly concerned about the cut as they will make less profits from their investments and savings.

One British pensioner told Chinese media that the interest he gets would drop significantly after the cut.

"I had a return of about 30,000 pounds in interests (some 42,000 U.S. dollars) before tax last year, but I'll be lucky to see 3,000 pounds (some 4,200 U.S. dollars) now," Peter Bradley said.

Bradley and his elderly mother under his care at his home in East London were relatively well off. "I really feel for those whorely on their savings," he said.

The new interest rate cuts had a negative impact upon the stock markets, sending the FTSE down 3.18 percent, the CAC 40 down nearly 4 percent and the DAX down more than 5 percent.

BUSINESS FAVORS CUTS

The fresh cut has been welcomed by the commercial circle. The British Chambers of Commerce (BCC) supported the BoE's decision. David Kern, chief economist with the BCC, said it was a decision made "in the face of a severe recession."

Chancellor of the Exchequer Alistair Darling said that something needs to be done, adding that it was "necessary to take a range of measures" to help Britain "move towards recovery." The United States had made similar moves and other countries would be likely to follow suit, the chancellor said.

Britain indeed was not alone in cutting interest rates. The European Central Bank this week slashed its rate from 2 percent to1.5 percent. The continuing economic uncertainty was also highlighted by ECB President Jean-Claude Trichet who said he was concerned about the risk of deflation in the Eurozone.

With little room for further rate cuts, the BoE has planned to inject 75 billion pounds (some 106 billion U.S. dollars) into the banking system to spur the economy.

IS PRINTING MORE MONEY GOING TO WORK?

Many in Britain have doubted if "quantitative easing", or printing more money in layman language, will encourage spending by making loans easier.

Japan's failure to stimulate its economy with a massive injection of cash from 2001 to 2006 has been widely cited as an example of the possible pitfalls of such a move.

Japan poured the equivalent of some 350 billion U.S. dollars into its economy, but saw little effect.

"To be effective, the quantitative easing measures will have to be forceful as well as transparent to help calm the markets and lessen speculation against sterling," BCC economist David Kern said.