Interest-ing new rates for borrowers
Feb 5th, 2009 by Jamie Bradley
Positive news for UK borrowers this morning as the Bank of England has cut interest rates to a record low 1%, as they look to boost the country’s economy.
As the credit crunch began to bite in the second quarter of 2007, interest rates soared to a six year high of 5.75%; the second highest it has been this millennium.
The banks began reducing their rates monthly in October 2008 as recession loomed, however, the gradual decline in rates were not sufficient to prevent this and negative economic growth continued into 2009.
The Bank of England are hoping that the rate cut will help to reinstate borrowers’ confidence in the banks and, in turn, encourage them to borrow more money that will be reinvested in the economy through product purchases and service costs.
This will come as good news for those needing a much needed cash injection to help with repayments, mortgage costs and future investments.
The decision will also be welcomed by companies suffering from the effects of the crunch, in the knowledge that they can obtain cheaper credit and continue to pay staff, which in prospective, should seemingly prevent further redundancies.
On the other hand, the move could have significant consequences for lenders, most significantly those who use the funds to loan as mortgages. Because they have to cut their fees to reflect the Bank of England’s revised interest rates, banks and building societies will see their annual profit margin slashed as a result.
The Federation for Small Businesses believes that the solution to the economic crisis does not coincide with further interest cuts, claiming that these reductions are “not having the desired effect”.
The FSB maintains that the only way to reverse this state of economic decline is for banks to be more dedicated to ensuring that the required funds are actually made available to smaller companies, rather than simply cutting rates to benefit larger companies with more financial stability.
“Small businesses are clearly worried that this monetary policy has been used extensively over the last few months, yet they are still struggling to access cheaper finance.
“The onus is really on the banks to start promoting these lower rates to fire up the economy.”
Whether or not the banks will revert to offering easy credit to smaller companies still remains to be seen. The problem with that is they are not guaranteed to be fully reimbursed if those industries do go bust and yet more money is extracted from the economy, which will have an adverse affect on economic growth.
For those of you who are fortunate enough to be in a financial position to secure a lucrative loan, any future monetary concerns will surely be eased in light of this news.
If, on the other hand, you are still finding it difficult to obtain sufficient credit, you are one of many still suffering from the repercussions of recession that will only ease with consumer prosperity.
By Jamie Bradley
