News

The drop in interest rates is only likely to benefit the packaging industry when banks pass it on to their customers and consumer spending improves.

The Bank of England today (4 December) lowered the rate of interest from 3% to 2%, its lowest level in half a century.

But Tim Rothwell, packaging market specialist at Lansdowne Capital, told Packaging News it was "still too early to tell what the outcome would be".

"Anything that stimulates the economy, and particularly the dynamism of the housing market, would be welcome as consumers will feel more confident about spending," he said.

"But there are questions over the extent banks will pass the cut on to mortgage customers, and also over the availability of mortgages to new buyers."

Rothwell added whether the cut would stimulate the global economy was also unsure, highlighting the recent impact of a fall in Chinese demand on the UK recovered materials market.

"The UK is linked to the rest of the world," he said.

Ian McCafferty, CBI chief economic adviser, agreed the economy needed a significant monetary stimulus and what was critical for business and consumers alike was that "this reduction is passed on".

"The economy is stalling, inflation is expected to undershoot the Bank’s own target and the headline RPI rate of inflation is likely to turn negative for at least a few months in 2009. We need to see lending improve and to keep business working," he said.