As Gordon Brown tried to encourage banks and building societies to lend out more money, this marks the 5th rate cut in less than 5 months. Last October the rate stood at 5%.

The UK economy fell half a point between July and September, and by more than a point during November and December (ONS Stats).   The number of unemployed people in UK has also risen to 1,920,000 – the highest level in the last ten years.

This latest interest rate cut has lead to the Building Societies Association to comment that savers are effectively being punished for saving for having prudent financial planning.

Some business groups have argued towards that further cuts in the interest rate will not ease the economic crisis that the UK finds itself stuck in.  The Federation of Small Businesses believes it is a mistake to cut the rates. They are demanding improved access by lending institutions to new capital.