Is Cutting Interest Rates a way out of Recession.

I think the Politicians, Bankers, Economists and Business leaders should think again about their mantra that cutting interest rates helps the economy out of recession.

Lets go back to first principals - If I put money in a savings account I should get paid a rate of interest for lending the money. Out of the interest most people will have to pay tax probably 20% but in some cases 40%. If inflation is significant then there is little incentive to save as by saving people will be losing out.

If savings rates are low then most probably so are annuity rates which are normally a couple of percent higher than savings rate as the provider collects all the money when the customer passes away. Some people are able to defer taking their annuity ( Up to age 75 ) when rates are low, but many do not have the savings to allow that option.

So when the Bank of England reduces Interest Rates the people who get hit are savers and people about to retire. The people with savings are often retired.

The people who benefit are those who have saddled themselves with debts. The larger the debt the bigger the benefit.

One problem that often occurs is that the value of sterling is effected and the exchange rate falls.
When the pound falls against the dollar the cost of Oil, Energy (Electricity & Gas) increases.
Oil increases put up the cost of fuel, which increases transport costs and food is also likely to cost more.

The question is having reduced peoples spending power by reducing savings and increases in inflation is this more or less than the gains of those with debts and mortgages. Will the later have spent more to help the economy.