George Osborne welcomes rate cut but presses for action to boost lending

George Osborne welcomes rate cut but presses for action to boost lending

The government should follow up today's interest rate cut by taking measures to increase lending, the Conservatives said today.

The shadow chancellor, George Osborne, said that he welcomed the Bank of England's decision to cut the interest rate to 1.5%. "It's the right move. But the key thing now is that the rate cut is passed on [by the banks]," he said.

But Osborne also insisted that there was a role for the government, and he urged ministers to accept Tory plans for the creation of a national loan guarantee scheme to underwrite bank lending.

"The issue is not just the cost of money but the availability of money. We are in a credit crunch. That's why the government has a role. They have got to introduce a national loan guarantee scheme. Otherwise the rate cut will not be as effective as it should be," Osborne told the BBC.

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Vincent Cable, the Liberal Democrat Treasury spokesman, also praised the Bank for its decision.

"As the recession deepens and the risk of deflation continues to loom on the horizon, this latest interest rate cut is welcome," Cable said.

"However, cutting interest rates can only go so far to help business and individual borrowers. For many borrowers, the problem is not the price of credit but its availability.

"The government must now set out a clear strategy for kick-starting lending to consumers and sound businesses. Unless the lending market can be quickly unfrozen, ministers will have to investigate whether one of the state-owned banks can be used to increase lending to businesses."

The TUC general secretary, Brendan Barber, also said that the cut, though welcome, would not be enough on its own to make credit more available to businesses.

"With more job losses being announced every day, the government and the Bank of England must stand ready to take further action to boost the economy and make credit available once more, such as action to take out the toxic debts that are still hobbling the financial system," Barber said.

But the National Pensioners Convention (NPC) said the cut would be bad for savers.

Joe Harris, NPC general secretary, said: "Around 6 million pensioners don't really have sufficient savings to be significantly affected by the rate cut, but an average pensioner with £10,000 in the bank or building society has already seen their income drop by around £6 a week, and today's further cut will only make the situation worse. What is needed is a real improvement in pensioner incomes, which can only be achieved by substantially raising the basic state pension."

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