1.5% interest rates - will they be enough to ensure a shallow recession?

With the Bank of England cutting its interest rate to the lowest ever - 1.5% - it does seem that the interest rate weapon is being used about as much as it can be. It remains to be seen whether this will be enough to ensure a shallow recession. However, it could well be that cutting interest rates when the real problem is bank's lack of willingness to lend is like pushing on a string. It does not have an effect.

John McFall argues that the rate cut might not be enough. He says that a state bank might be needed to give credit to firms if banks are not willing to do so. This may be needed to stop firms that are otherwise doing ok from going under. This is quite progressive stuff for a Chair of the Treasury Select Committee to say. We will have to wait and see whether the nationalised banks will be willing to extend credit. I suspect, with the 'hands-off' approach the government is taking to managing them, that they won't.

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