The Bank of England has announced interest rates would remain at five per cent, despite calls for a cut to help Britain’s ailing economy.
The decision came as mortgage giant Abbey slashed its mortgage rates in a bid to kick start the property market, with new figures showing that house prices slumped by 10.9 per cent during the last year.
The cost of a home slid by a further 1.8 per cent during the month to leave the average property costing £174,178 - 12.7 per cent less than in August last year, according to Halifax.
Abbey was the second lender in two days to slash its rates on its two, three and five-year fixed-rate loans by up to 0.3 per cent. Lloyds TSB announced yesterday it was cutting its mortgage rates for the fifth time in a month.
The latest round of cuts came hours before the Bank of England announced it would keep rates on hold.
Business leaders claimed bringing the rate down would help the country avoid recession, but the widely-expected decision by the Monetary Policy Committee comes with inflation more than double its two per cent target at 4.4 per cent.
Nick Graham, chief executive of Shropshire Chamber of Commerce, said with inflation expected to increase in the near term, and the Bank of England having the primary goal of stemming inflation, the MPC should start cutting rates when inflation peaks in October or November.
2 Comments
Whilst I can understand that keeping (or raising) interest rates “high” supresses the money supply, and hence demand for goods /services is also supressed, it does seem strange to me that making a commodity ie “money supply” more expensive, reduces (or tends to?) inflation!
I would be interested to hear comments on this.
On the other hand, .. if we had “deflation” (the opposite of inflation) then no one would buy anything “today”, becuase it would be cheaper tomorrow! - and so that doesn’t work either ! - and isn’t that to a certain extent what is happening in the housing market?
It really seems to me that NO one in authority, including goverment. banking, and building societies have any clue at all about what to do about all this, or even why it’s really happening.
It also seems to me to be somewhat deliberate … because .. WHY is “everyone” i.e. from the Chancellor downwards …. talking the economy down all the time? …..
This can only mean certain areas of the population stand to gain from this!
suspicious (from askeric dotcom)
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The reason is simple - greed on the part of large companies and financial institutions.
Boom or recession, inflation or deflation, high or low interest rates, the rich always profit. Sadly the current Labour government have done nothing to address this and continued Tory policies of cutting tax for the wealthy.
As Denis Healey once said, we need to tax the rich until the pips squeak. And by the rich I mean those who formerly paid 60% at the highest rate before Thatcher lined their pockets with an immoral tax cut.
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