A cut in Bank of England lending rates cannot on its own ease the acute constraints on the supply of credit to British households and businesses, a member of the Bank’s monetary policy committee warned yesterday.

Tim Besley, who advocated raising interest rates over the summer to counter inflationary pressure, said the current drought of credit stemmed from global readjustment of past excesses which saw huge imbalances build up between consuming and saving nations.

'A cut in bank rate, on its own, will not be a magic bullet. No single instrument can work to achieve all goals,' Besley said in a speech to a financial conference in London last night.

Moreover, policymakers must not lose sight of their main mission, which was to keep prices steady, Mr Besley said. 'It remains correct, in my view, that monetary policy should remain focused on achieving the 2% inflation target in the medium term.'

A wide variety of measures, including fiscal policy, should be used to address the economic slowdown likely in the months ahead, he said.

Financial Times