Interest Rates

The big news today is that the Bank of England has dropped the interest rate by a huge 1.5%! That’s the largest drop in over 25 years, and puts the rate at 3%, the lowest in over 50 years! Well done the Bank of England. The reason behind this dramatic move was that they felt the British economy was beginning to head towards a long recession and wanted to give it a boost.

The big question now though, is will this affect mortgage rates? Banks and Building Societies seem very quick to put up their rates when the base rate rises, but will they be o quick to do the reverse? Apparently, the rates they charge for mortgages is not directly linked to the base rate, but to LIBOR (London Inter Bank Offered Rate) which is the rate that banks lend each other money. Which to me seems to be a case of “how much do we charge ourselves?” We all know think that the banks all work together. If they don’t want to lower LIBOR, but want to make more money out of us, what is to stop them? Would the Government really step in with legislation? Would we want them to? After all, in a free market, are companies not allowed to make as much profit as the market will let them? If the Government were to step in, it would no longer be a free market, but a regulated one.

The Bank of England has now indicated that it feels the economy needs help. It’s now up to the banks themselves to show us that they are not the greedy, money grabbing bunch of fat cats that we all think they are. Let’s hope they do the right thing, and lower interest rates. That way, we will all have money in our pockets to spend at Christmas.

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