Gordon Brown yesterday promised more action soon to unfreeze bank lending as the Bank of England cut its base rate to a record low of 1.5%.
Gordon Brown yesterday promised more action soon to unfreeze bank lending as the Bank of England cut its base rate to a record low of 1.5%.
The Prime Minister acknowledged the continuing credit squeeze meant a "vital" function to the UK economy had been lost.
At the same time across the Atlantic, Barak Obama urged the US Congress to pass his £500bn recovery plan or see the recession "linger for years". The President Elect's stimulus package includes creating three million jobs, doubling production of green technology, and giving every family an £800 tax cut.
After a cabinet meeting in Liverpool as part of his "listening tour" of England, Mr Brown said: "In the next few weeks we are looking at the measures we can take to take the next step, and take it with effect, and that is to get the banks to resume the lending that is necessary."
The options are thought to include a second cash injection for the banks, creating a much bigger loan guarantee scheme for businesses and taking toxic assets off lenders' books.
Among those calling for UK Government action to boost the availability of credit has been the motor industry, which yesterday reeled from Nissan's decision to axe 1200 jobs because of a slump in sales.
The posts will go at the car maker's Sunderland plant, which employs 5000 people at the biggest car factory in Britain and the most productive in Europe.
As trade union leaders described the news as "devastating" for the local community, Lord Mandelson, the Business Secretary, promised the UK Government would do all it could to help people find new jobs but admitted more losses in the industry could be expected because of the "very sharp drop in demand".
In the City of London, history was made when the bank's base rate was cut by 0.5% to 1.5%, the lowest level since the institution was founded in 1694. It is the fourth cut in four months; the rate stood at 5% in September.
The bank said the world economy "appears to be undergoing an unusually sharp and synchronised downturn". UK output was likely to continue to fall sharply during the first part of this year, it added.
Following the cut, the pound, which has fallen recently, rose to a three-week high of 1.12 and gained two cents against the US dollar to $1.52.
Some major mortgage lenders, including Lloyds TSB and Nationwide, said they would pass on the full 0.5% to their borrowers on the standard variable rate.
Business and trade unions broadly welcomed the base rate cut, although some economists had called for a full 1% point reduction. Analysts believe it could fall to zero by the spring.
Liz Cameron, chief executive of Scottish Chambers of Commerce, said: "Every effort must be made to ensure the mechanisms are in place to enable the banks to lend more easily."
Iain McMillan, CBI Scotland's director, noted: "If credit flows can be restarted, the monetary stimulus now in the pipeline is significant, especially when the fall in the pound is taken into consideration," he said.
Andy Willox of the Federation of Small Businesses in Scotland welcomed the cut, but said: "The FSB would like to see a guarantee that the banks will not only pass on the interest rate cuts but open up flexible finance to the small businesses that need it."
