Interest Rates; Does it make sense to cut them any more?
Although the Bank of England has suggested it is prepared to cut its headline rate even further to stimulate the economy, many analysts are questioning the value of this policy. It looks more and more as though the Bank of England has run out of ideas because, despite the deep and rapid cuts, banks have not increased their lending nor have they reduced their lending rates by anything like the Bank of England’s reductions.
What is needed is for the vast sums of money injected into the banks to be made available to businesses and home-owners. That was the Government’s stated purpose and the justification for the Government taking a stake in many banks. The Government told the banks that it wanted them to start lending ‘at the 2007′ levels but, because it also told them to increase their reserves AND to pay back the loans from the Government at high interest rate, this has not proven possible.
It seems evident that new solutions are needed before confidence returns and the economy recovers. Nevertheless, having been through downturns before, we remain confident that the situation WILL improve.
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Further Reading:
http://www.guardian.co.uk/commentisfree/2009/jan/14/bankofenglandgovernor-gordonbrown
http://www.guardian.co.uk/commentisfree/2009/jan/08/interest-rates-mortgages
Tags: bank of england, economy, home-owners, increase lending, interest rates, stimulate the economy