Interest rates down to 0.5 pc
Thursday 5th March 2009, 12:30PM GMT.
The Bank of England slashed interest rates to a record low of 0.5 per cent today as it embarked on a radical move to “print” £75 billion of new money.
In a landmark decision to aggressively fight the recession, the Bank said it was starting “quantitative easing”, effectively printing money, to ease credit conditions.
The 0.5 per cent cut from one per cent is the sixth cut in a row by the Monetary Policy Committee.
But it is the drastic decision to pump £75 billion of newly created money into the economy which the Bank hopes will help in the battle against recession.
The move has become necessary as the Bank is close to the zero limit below which interest rates cannot fall.
Buying
The Bank will now begin buying a range of corporate bonds and Treasury stock from commercial banks.
It will pay for these assets by creating new money, electronically, in a modern-day version of running its printing presses.
The freshly-created cash paid to the banks for these assets will be credited to their Bank of England acc-ounts. So the banks should be able to make new loans to businesses and consumers.
Lloyds TSB, Nationwide, Halifax, and Skipton Building Society all said they would be passing on the reduction in full to people on their standard variable rate, while Abbey is reducing its rate by 0.45 per cent.
Tim Sutcliffe, of Shrewsbury-based pi financial dixon sutcliffe, said: “The Bank of England is running out of options and it will not be long before they have no more interest rates cuts they can make.
“The switch to quantitative easing to manage money supply will help but only if they get the balance right – aggressive enough to encourage lending by banks but not creating too much cash to send inflation out of control.
“Clearly there are the usual winners and losers with an interest rate cut but a summer of discontent now seems inevitable regardless of this.
“With many companies going into receivership as they are forced to make good on the deficits that have now been generated in pension schemes, strike action and general discontent is on its way.”
By Business Editor Amy Bould
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Very good for people with tracker/variable mortgages but savers and pensioners are going to really suffer now as banks will act fast to cut their interest rates, especially on savings accounts!
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Why reduce the rate again, can the govenment not see that the last reduction did nothing, and the mortgage lenders did not follow the reduction below 2%, why not reduce the tax rate, at least this would put money in all the workers pockets, to spend or save as they wish.
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Another opportunity for the banks to coin it in now they’ve basically abandoned trackers for new mortgages and for those remortgaging after their fixed rate terms have finished.
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The effect of this and a number of other economic measures, including efforts to make the banks release lending cash to businesses in particular, have really yet to be seen.
It seems that most economists are agreed that this is the best way to reduce the effects of the current global recession.
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What does 1/2% bank rate actually mean to the average person?
Have you seen your cost of living, loan rates, credit card rates etc change at all? I haven’t !! In some cases, particularly credit card charges, rates have gone UP!
So – If the base rate of 0.5% actually represents the cost of money “at source”, then clearly someone is making a lot of money out of this, becuase the end product “cost” (i.e what “you and I” pay for it) – hasn’t changed much!
So … where’s rhe REAL benefit of such a low interest rate ??
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one half of one percent equates to two fifths of naff all. there is little point in having any savings. put your money in premium bonds, gold or as i have said before old dinky toys.
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Let’s call a spade a spade, as someone said on todays 1.0pm News, Britain is now on a par with the Weimar Republic and Zimbabwe, in that all three were reduced to the economic dregs and had to “print” money. Japan did the same about ten years ago, it did not solve her problems and now Brown has done the same here.
This Government is taking a leap in the dark and they are totally at a loss to know what to do.
Metaphorically, the Royal Mint printing presses are now working overtime producing money that nobody has earned, loaned or borrowed, no taxes have been paid on it, all that has happened is that the B of E has just given itself £75 Billion of crisp new notes fresh off the press with another £75 Billion in the offing and, as with the low interest rates, who is going to benefit.
One thing is very certain, those who benefit will not be the man and woman in the street. It has been done to induce Bank lending and improve corporate liquidity.
There is no guarantee that the banks will make loans and even with almost “nil” interest rates, there is no guarantee that the common man will make large scale purchases even if he could get the loans to do so. His job security is in the lap of the gods, his house is under threat if he is unemployed and, all in all it is a vicious circle – which according to the financial genius Ed Balls, the Government Minister, was due to the mistakes of New Labour over the past 10 years. (Just in case anyone doubts the admission of Balls, replay the Sky news of today).
These measures, printing money and almost zero interest rates are the final throw of the dice. There is nothing else that can be done. Inflation may now possibly let rip, interest rates will have to rise to counter that and the vicious circle starts all over again with the unbelievably massive borrowings by this Government having done no good whatsoever.
In amongst all this fiasco are the pensioners, the responsible ones who saved for their retirement and who have seen their pension investments sink to almost nothing, those, like me who rely on monthly interest to supplement their pensions have seen their income reduced to almost nothing on top of the means tested state pension which they were penalised for. The only pensioners laughing all the way are the spendthrifts who saved nothing, were not means tested and get all the benefits that those who were means tested, do not qualify for. Welcome to the world of New Labour. Is there a means tested pensioner out there who intends to vote for them?, hands up.
For god’s sake Cameron, let them have another term, don’t even fight it. They got us into it, let them get us out of it, if they can.
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this shows Labour isnt working, step aside Brown and let the real men in the Tory party take over before you ruin us, come on say sorry and resign, we will take the helm, slash taxes and clear up the Labour mess (again!)
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Stuart,
Most of the current recession is caused by lack of confidence. People won’t spend because their jobs are less secure, because businesses cannot borrow cash.
Of course 0.5 percent is not greatly going to tempt the man in the street to go out and get a new loan – but it makes a difference to businesses looking to finance new endeavours, or to someone looking to take on their first mortgage.
If businesses are to take advantage of the export opportunities afforded by a lower pound, it’s very important they are given access to a money supply at reasonable rates. This could represent a real opportunity for our exporters, particularly in Europe and the US.
You clearly didn’t listen to the same Ed Balls interview on Sky News that I did. He said that Labour had introduced tougher financial regulation (they did) but that in retrospect it hadn’t been tough enough. He also pointed out that the City and the Tories opposed that toughening at every stage.
So there’s no evidence at all that the Tories would have regulated the banks any differently or better than Labour – in fact historically they have been very much anti-rregulation, dismissing it as ‘red tape’.
Their approach since the crisis has been very much one of ‘Don’t intervene – do nothing’.
Given that approach, where would many pensioners be now?
They would not only be losing out on interest, but would have lost some or all of the money deposited – that’s the harsh reality of what happens if you let banks fail – it’s not just the greedy bosses or the high-risk speculators who suffer, it’s the ordinary depositors too.
For that reason the various interventions have been necessary, and supported by the vast majority of economists.
Much as we may all despise the philosophy of corporate greed that has caused this mess, we do need a functioning banking system. At present it seems we cannot trust the private sector to provide that at present – so the banks have had to be taken to some extent into public ownership.
To compare our current situation to Zimbabwe or the Weimar Republic is just hysterical exaggeration. I assume you are also comparing the US economy to them?
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ITS GREAT NEWS FOR ME WITH MY VARIABLE RATE MORTGAGE, IM OFF TO GO SHOPPING – YIPEEEEEE!
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Mission complete, comrade Mcbroon!
UK on it’s knees
Let the EU finish it off!!!
Things can only get better?
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Peter I differ with you on almost every point – particularly over regulation 0R LACK OF IT. Ed Balls was being used as the medium to be contrite and accept Labour’s responsibility for the present mess. What he was saying in your interpretation was little short of downright lies. What he did not say and you conveniently forget, is that both Blair and Brown having set up the FSA, TOLD THEM TO EXERCISE ONLY “LIGHT” SUPERVISION OVER THE ECONOMY. This is fact, unarguable. The Tories were not in power, things were fine over regulation until Brown “reorganised it”. But you will argue on that I presume. Perhaps you can quote one example of where Brown “tightened up” regulation and when / how the Tories and the City opposed it. That is just Ed Balls coming out with his usual little round onjects. Had the Tories remained in power this current problem would not have occurred because they would not have reorganised the SIB, brought about the FSA, told them to go easy and things would have remained with the B of E. Banks would not have been allowed to run riot as they have done so why compare a hypothetical Tory policy with a factual Labour policy.
As for your “various interventions” which all pundits agree on – name one which has actually come to fruition. Ask those with mortgage problems what Browns initiative has done for them – zilch. Repossession for Northern Rock are running at their highest rate since the company was founded.
The Zimbabwe/Weimar cases were an example of “printing money” and the consequences of doing so, the same example was used this morning on BBC Breakfast. Better “economists” than you or I – indeed some in the City use them to illustrate how innefective the “printing money” tactic really is. Let’s wait and see shall we – I predict total failure and Brown has nothing left up his sleeve. He will have done everything he can do.
As for the allegation that the Tories would do nothing – well now, apart from the opening shots in this mess by bailing out Northern Rock which the Tories were ambivalent about, Brown seems to have pinched every iniative off either the Tories or the Lib Dems. Let’s see what he gets from the International set when they meet in London shortly. For all the good Brown’s “interventions” have been, Labour might well have done nothing to sort out the mess that they have made.
“Where would pensioners be now” you ask, well, let’s look where they are under your crowd. As a pensioner at present I am worse off by over £50 a month, on the 1st May, my monthly income will go down by £400 a month, my brother, also an elderly pensioner has just lost another £5,000 off his investments. Those due to take up their pensions when they shortly retire can be in dire straights depending on how their funds are invested.
Pensioners who are means tested get absolutely no freebies, benefits or allowances except the basic state pension, if they are like me, they will have lost massive saving’s interest and the state pension will be their sole income but look at those spendthrifts who didn’t save a cent, state pension, pension benefit, Council tax benefit, mortgage or rent benefit – where does one stop.
Now we have Darling tell us that there will be something for pensioners in the budget, we have had a hint – reduced Income Tax on savings interest. Perhaps the idiot will tell me how he can reduce my income tax any further on £2.15 per month income from savings interest.
Labour have run true to form, a total economic disaster and they should not be allowed to govern an infants school classroom. My real and genuine fear is that the Tories are going to win the next election, if ever there was a poison chalice that would be it. They handed over a perfect economy without a breath of trouble in sight, Labour has wrecked it and if things turn out as seem’s likely, they will receive back an economy that will take the next 100 years to sort out and what is worse, the Tories will get the blame for it.
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Peter hit the nail on the head “confidence” the Capitilist systems thrive and dive to a massive degree on confidence! I find the Media so negative and down right depressing in their reporting of the recession and wonder just how much they are affecting the confidence factor?
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LABOUR IS BROKEN, GET THEM OUT AND GET US IN TO REDUCE TAXES NOW
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good for them, this policy is helpful to the vast majority of us with mortgages it will help us keep up payments and avoid repossessions, it also makes th price of money less, so will restart the economy, its a sensible policy and even the tories with their lack of economic credibility would have done the same thing im convinced, it will help, so tory boy is wrong as usual
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Harlescott Salopian, just in case you didn’t realise it, people with mortgages are not the only ones affected by Labours disaster. Pensioners (except those of the Labour hue and almost certainly on benefits) are hurting really bad, the unemployed are wondering how to pay their mortgages, low as the interest rates are, small business – and large for that matter are similarly hurting You say the price of money is “less” – quite right, so it is, there is only one snag, banks are not lending it to those who want it so what is the message of your comment in this regard. Then, what about all the other consequences of this Brown made fiasco, massive costs for our imports and raw materials, a disastrous rate of £ Sterling against the dollar and Euro, businesses folding by the day, reduced public spending will be an inevitable consequence after Brown has stopped borrowing, we are massively in public debt (what is it, over two Trillion, Iv’e lost count, did you know what a “Trillion” was until Brown got hold of the economy. You certainly should do now, it will take over 100 years to pay back with every person in this country seemingly equivalent to owing £34,000.
As for repossessions, you obviously do not read the papers or look at the TV – I suggest that you do, you are in for a surprise. Repossessions are rocketing.
Then, on the subject of “economic credibility”, the typical comments coming from a Labourite who thinks other people will believe and accept their trite, unfounded remarks which have no basis in fact.
Apart from the years of Blair (when this present disaster was being incubated), name one Labour Government which has not ended in economic disaster, and you have the downright gall to say the Tories lack economic credibility. What state was the economy in when Ken Clarke handed it over to Brown? absolutely marvellous.
Now, take a breath and tell us what Brown has done with it because if you don’t know now, in fifty years time, members of your family will still know what it was all about. Sorry, Harlescott, you seem the type that will follow Labour over the top into the fires of hell without wondering or questioning why.
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