'Weakness of global banking means credit is constrained'

The weakness of the global banking and financial system means the supply of credit remains constrained, it was reported today.

These comments, from the Bank of England, came after it announced it would cut interest rates by 0.5 per cent to one per cent.

In the United Kingdom, it explained, output fell sharply in the fourth quarter of 2008 and business surveys point to a similar decline during the opening of this year.

On top of this, the sterling has continued to depreciate in value, meaning the cost of imports has risen.

The Bank of England stated inflation is expected to fall below the two per cent target by the second half of 2009.

Along with this, the reduction of sterling and the changes in Value Added Tax could mean "the [future] path may be somewhat volatile".

Fluctuating currency exchange rates have may have had an effect on those businesses that do international trade.

According to HiFX, as of February 5th 2009 at 15:30 GMT, the sterling was trading against the American dollar at 1.46 and against the euro at 1.14.