Interest Rate News...

Interest Rate News - November 6th 2008

Dramatic fall to 3% - interest rates cut by 1.5%

Well apologies for being off the air since June, however, we've had a dramatic fall in interest rates. This means that rates have decreased by 40% in a month. This is great news for borrowers with variable rate mortgages which accounts for around a third of us but also the increasing numbers having to remain on standard variable rate mortgages who have not been able to remortgage owing to decreasing property prices. Effectively locked out from remortgaging and causing misery and or repossession.

It does seem very unfair that people who have been in this position have suffered when the government has now just woken up to what is actually happening. Obviously the news that's coming through has been so ghastly that has meant that this historic decrease in interest rates means that the MPC has had no choice but to react accordingly. No doubt we'll find out about this when the news is eventually released to the general public.

There seems to be a secret panic within government to reprime the economy so that consumers carry on spending and for us to maintain our pre crunch lifestyle and so that our spending habits don't become 'recession ingrained' as this will then mean that we're in for a long recovery. It's all about confidence...

The indications are that LIBOR is gradually beginning to come down which will be a huge relief as this means that mortgage lenders liquidity will increase. From a property point of view, also tremendous news as property price decreases has occurred as a result of lack of credit, triggered by the irresponsible US property lending.

What goes down so fast can also come up again so fast but apparently it seems that there's more cuts possibly to come, down to perhaps 2% - we'll see.

Interest Rate News - June 6th 2008

No Change in Rates

The Bank of England's decision not to cut rates means that we're now in for a rough ride.

Earlier in the year, it had been thought that the UK could bear a small amount of inflationary pressure and that rates would come down further. However, with the news that inflation is now over 3% and with many families seeming it to feel more, the BoE has no room to manouvre.

The Bank's remit is to keep inflation under control at 2%. Clearly if inflation is running at 3% and set to go higher, rates may have to rise. Pretty unthinkable really but as mentioned below, a policy definition of monetary policy has been called for by Professor Spencer and it's hoped that this may be under consideration.

One thing's for sure: It ain't pretty and the outlook's bleak. We're going to have to endure a financial storm. Time to dust off the homebrew receipes and grow your own veg...

Interest Rate News - May 17th 2008

Further cuts expected despite inflationary fears

The Bank of England (BOE) had cut interest rates in April to 5% but have left rates on hold in May. A further quarter point is expected to be announced in June 2008.

Well let's hope so. The appalling news about the state of the economy is pretty alarming, with house prices set to fall further owing to the credit crunch, despite earmarking £50 billion to be lent to the wholesale money markets for mortgage companies to borrow against and to hopefully engender a greater degree of fluidity between financial companies meaning that Libor would reduce and make new mortgages cheaper than they are today.

It seems that in solving one problem, there's the prospect of another in the ogre of inflation. Food and oil prices are rocketing throughout the world which will stoke inflation over the chancellor's precious 2% limit. With inflation now at 3%, the prospect of any rate cuts is diminished, so we'll have to see what the interest rate news is in June.

This situation reminds me of the ludicrous times in the late '80's and early '90's, where the UK tracked, doggedly, against the European ERM which led to the idiotic situation of interest rates of around 15% one day and 10% the next. The pain had been too great, and the speculators, including George Soros, had earned £7 billion out of the UK tax payer as the chancellor tried to bet against the markets.

Let's hope that the current chancellor has the sense to listen to Professor Peter Spencer of Ernst and Young's Item Club and review the core specification of monetary policy.

Interest Rate News - February 7th 2008

UK Interest rates cut by 0.25% to 5.25%

The Bank of England (BOE) has, as expected, lowered interest rates by 0.25% to 5.25% today to shore up the economy in the face of weakening demand and the effects of the credit crunch.

The BOE warned that inflation was still a risk and may breach the 3% and that some slowing of demand was required to get inflation back to target in the medium term.

"The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued," the BOE said in a statement.

"The Committee needs to balance the risk that a sharp slowing in activity pulls inflation below target in the medium-term against the risk that elevated inflation expectations keep inflation above target."

Interest Rate News - December 2007

UK interest rates cut by 0.25% to 5.5%

The Bank of England has cut UK interest rates to 5.5% from 5.75% with signs that the economy is slowing.

Expectations of a rate cut had risen after figures indicated that economic conditions had deteriorated over the past few weeks. This cut was aimed at preventing the slowdown getting out of control and engineering a soft landing for the economy.

The mortgage lenders Halifax and Nationwide have cut their rates in line with the move which according to Moneyfacts.co.uk said that lower borrowing costs would save between £15 and £20 a month on a £100,000 mortgage.

These mortgage rate cuts will put pressure on other mortgage companies to follow suit although some lenders have been predicted to not pass on the rate cut as there have been increases in the LIBOR rate (the rate that institutions lend to each other). This is a direct result of the credit crunch that started in America.

The worries are about rising food and oil prices coupled with reported falling house prices from the Halifax and a slump in consumer confidence coming from Nationwide. The rate cut is to ensure that the economy does not slow too quickly and that the focus is on growth rather than inflation.

"The credit crunch - which seemed to be resolving itself in October - has recently taken a nasty turn for the worse," said Peter Spencer, chief economist of Ernst and Young's Item Club.

A further cut in rates may be required early next year if credit conditions remain too tight.

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