Finance, Forex and Investments

How the cut in the UK Central bank interest rates is going to help the current economic crisis?

I would like to know the positives to this decision ! Though an economic interpretation would be ideal !

Public Comments

1. The cuts are suppose to make people spend which in turn would boost the economy.Trouble is its not working people are still not spending. Maybe we have wised up at the moment interest rates are low.I for one do not see them staying low for long.
2. I think the priority for the Bank of England is fighting off deflation which is threatening to occur in the next few months. That's probably why they cut rates again. If for some reason the economy picks up in the second half of this year we'll see inflation rise again and interest rates will shoot up.
3. Cutting interest rates can produce an increase in the money supply, which has effectively been reduced by the credit crunch. The threat is deflation, which is the opposite of inflation, and can be just as damaging (deflation can lead people to postpone spending plans for luxury goods as prices are falling, which can lead to the prices falling further and businesses collapsing). If this cut in interest rates doesn't work, the UK Central bank may become tempted to use "quantative easing" as used in Japan, to directly increase the money supply (e.g. by printing money) and so prevent deflation.