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Will the Dreamers See Another Interest Rate Cut This Week?
With some people calling for another reduction in the interest rate when the Monetary Policy Committee (MPC) at the Bank of England meets this Thursday, there seems to be no guarantee that any cuts will be passed on fully to those who really need it.
Last month the MPC decided to cut the interest rate from 5.75 per cent to 5.5 per cent in a bid to avoid worsening conditions as a result of the credit crunch. If financial conditions get worse considerably, then banks would be unwilling to lend each other money and they would be unlikely to lend consumers money. Consumers would then be less inclined to spend money. This would lead to the economy slowing down far too rapidly.
The Bank of England sought to relieve this situation, without fuelling inflation, by injecting more money into the economy to reduce the lending rate between financial institutions and cutting the interest rate.
According to The Observer though, only 65 per cent of lenders passed on the full interest rate cut to their borrowers. A significant number of the smaller lenders though did not make similar cuts in a bid recoup some losses and to reduce the risk of their lending. Even some of those who did make the full cut held back until the start of this month to actually implement the change.
The dreamers who would like to see a cut in interest rates this week in order to help with debt management by either borrowing or seeing a reduction in their repayments may be disappointed if cuts aren’t passed on again.
With the housing market slowing down and mixed reports on high street trading on the run-up to Christmas, the interest rate may well decrease again but many of those lenders who felt able to make the full cut last time may not feel able to do so this time.
It seems that those managing their money and repayments should not rely on this Thursday’s decision, regardless of whether rates drop again or remain the same. Should they fall below 5.5 per cent, it could be those borrowers who lost out last time who are the main beneficiaries in January. Until the lender you are dealing with has made their move, you’re best sticking to a strict budget.
Loan News posted on 07 January 2008
