Deepest recession for Twenty Years – Stop reducing Interest rate!

Bank of England was established in 1694

The Bank of England’s interest base rate is expected to reach an all time low of 1% later today. The current rate of 1 ½ % is the lowest level of interest base rate ever seen in 315 years since it was established in 1694. This is dreadful news for savers but great news for mortgage borrowers on tracker rate mortgages or borrowers on the lenders standard Variable rate.

The question we should now be asking is, “Are interest rate cuts having any real effect anymore?” Personally I don’t believe that these interest rate cuts are making any difference. Interest rates have already fallen massively and it always takes a long time for these cuts to filter through to the wider economy. The sensible thing for the Bank of England to do now is to wait and see what impact their previous interest rate cuts have had before reducing rates again.

It is thought that interest rate cuts by the Bank of England will stop at 1% and the Government will have to look at other ways to stimulate the economy like using quantitative easing or printing money. This is where the Bank of England would start buying Government Bonds or Corporate Bonds with government money. This additional money would then feed through to the wider economy. Quantitative easing is fraught with problems such as it can cause inflation to run wild and governments do not know when to stop or how much is enough.

The Building Societies Association has said, “No more interest rate cuts”. The reason for this is the public are not depositing money into their savings accounts anymore. The Building Societies need money from savers so they can lend it out to mortgage borrowers in order to keep money moving around. Currently there are no incentive for savers to save with saving interest rate offered being below 1%.

We have reached a level today where any further interest rate cuts will be counter productive as they stop Banks from lending and savers from saving. This situation is costing the Banks more and more to lend and they are becoming less profitable in the current situation.

Your thoughts, experiences and comments are welcome. You can join this discussion below and leave your thoughts and experiences.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Tags: bank of England, deepest recession for twenty years 8211 stop reducing interest rate, interest rate, Mortgage, mortgage borrowers, rate cuts, saving interest rate, Savings, standard variable rate, tracker rate mortgages

This entry was posted on February 5, 2009 at 11:32 am and is filed under Advice and Information, Credit Crunch, Interest Rates, Mortgage Market, Recession, Remortgaging in todays market. You can follow any responses to this entry through the RSS 2.0 feed.

2 Responses to Deepest recession for Twenty Years – Stop reducing Interest rate!

Monty from Mortgages Rate on March 12, 2009 at 12:06 pm

I agree that the rate cuts are not making any difference now. Quite the contrary as the BOE rate is rock bottom but some greedy lenders are not passing these on.

They are merely using this to claw a lot of money back and to try and put right their own failings in the sub prime debacle.

As ever, the man on the street pays!
Jammer Stock on October 14, 2009 at 6:26 pm

Thank you for that post. It was interesting to read.