Thursday, 5 February 2009

Interest Rates At 1% Won't Make A Blind Bit Of Difference!

The Bank of England cut their headline interest rate by 0.5% today to 1%. In times gone by, when our economy was managed by cuts in interest rates that were designed to manage the inflationary trend of our economy, this sort of intervention would undoubtedly have done the trick and an almost immediate benefit to our economy would have resulted.

The problem we have today is not that interest rates are in any way the problem. Quite the contrary, and today's cut will only serve to penalise the millions of prudent savers with money deposited in banks and building societies - many of whom rely on interest payments to make ends meet.

Across the UK the problem faced by our economy is not the cost of borrowing - it is the reluctance of banks to lend!

Despite the taxpayer owning many of our banks it appears our government are unable to get them to relax lending criteria so that businesses can borrow to invest in our future.

Why? Simply because it is government policy that tells banks to pay us back as quick as they can and to reduce their exposure to bad debt as they do so.

So what are banks actually doing instead of lending to viable businesses? They are foreclosing on businesses in trouble and in homeowners struggling to keep up payments in compliance with government instructions.

In conclusion, today's interest rates cut will damage those who have done the right thing by saving and do very little to help those who need to borrow, because none of our lending institutions will take any risk. So despite hundreds of millions of pounds spent on bailing out our banks cuts in interest rates are simply not doing anything to help our economy recover.

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