The loans sector might be helped more by the Bank of England buying corporate bonds, analysis from a respected thinktank suggests.
The Bank of England should not cut interest rates when it holds its monthly monetary policy meeting later this week.
Analysts are split over whether or not the Bank will reduce its lending rate still further from its present all-time low of 1.5 percent. The rationale behind making such a move is that it makes loan repayments cheaper - thereby providing a boost to the currently recession-hit economy.
Policymakers appear to have been convinced by these potential benefits and have reduced the rate at each of its last four meetings.
However, the opposing view is that cutting the rate would be counterproductive. Indeed, NIESR is not the first industry heavyweight to come out against further rate cuts.
Earlier this week, the Building Societies Association, representing many of the UK's mortgage lenders, suggested that making loans cheaper through a rate reduction would not help borrowers enough in order to justify the damage such a move would do to savers.
Martin Weale at NIESR said that the Bank should now look at alternative ways of boosting loan lending, such as purchasing corporate bonds. "If the Bank of England is a buyer the corporate bond market will be more liquid," he was quoted by the Daily Telegraph as saying. "My sense is that this policy will be much more effective than a half point or a full point [rate] cut."
NIESR is one of the UK's most respected economics thinktanks. In December, it predicted that GDP had contracted by 1.5 percent in the UK over the last quarter of 2008, a prediction subsequently confirmed by the release of official government statistics last month.
