BoE slashes interest rates by 1.5%

[dirtydog]

Good for those with debts but not so good for those of us with savings and no debts :(

http://news.bbc.co.uk/1/hi/business/7713006.stm

[Desmo]

1.5%? :shocked: That's a big step.

Hopefully it will stay low for when our fixed rate mortgage comes to an end next year.

[dirtydog]

A reflection of how dire things are, I think.

[Desmo]

Just read further down that some of the banks may not pass the cut on to borrowers. Bit off if they don't...they should at least meet half way.

[dirtydog]

I think we can safely say they will be quick to pass on the rate cut to savers!

[Admiral Huddy]

You think?

Superb news!! I just hope the banks pass this down.. TSB have announced they will but I wouldn't be surprised if the like of RBS only pass on a small percentage.

I think I'll increase my monthly payments to take advantage of this. :)

[phykell]

Just read further down that some of the banks may not pass the cut on to borrowers. Bit off if they don't...they should at least meet half way.
It should be mandatory TBH and is especially ironic considering it's largely the banks who are to blame for the current situation. It was their greed and their stupidity.

[Matblack]

Now I'm pleased I took the BoE tracker mortgage which didn't have an arrangement fee :)

MB

[dirtydog]

It should be mandatory TBH and is especially ironic considering it's largely the banks who are to blame for the current situation. It was their greed and their stupidity.

I definitely think there is a case for regulation in that area. In theory market forces control what rates banks lend at, but in practice it isn't exactly easy or affordable to move your mortgage, loan or credit card debt to another lender who has cheaper rates.

[A Place of Light]

Just read further down that some of the banks may not pass the cut on to borrowers. Bit off if they don't...they should at least meet half way.

Won't it mean that the banks that do will suddenly find themselves with a lot of extra business on their hands and, as a consquence, the others will have to follow suit?

[phykell]

I'm not sure what I think about this. I'm happy from a personal p.o.v. but I think if there was some debate about a 0.5% or a full point reduction, it seems a bit odd to go for 1.5%. To my mind, it would have been more prudent to withhold the further 0.5% for (say) a month down the road. As it is, their scope for further reductions is vastly reduced and I do wonder what sort of message this sends about the health of an economy that seems so reliant on something as abstract as mere perception.

[A Place of Light]

I'm not sure what I think about this. I'm happy from a personal p.o.v. but I think if there was some debate about a 0.5% or a full point reduction, it seems a bit odd to go for 1.5%. To my mind, it would have been more prudent to withhold the further 0.5% for (say) a month down the road. As it is, their scope for further reductions is vastly reduced and I do wonder what sort of message this sends about the health of an economy that seems so reliant on something as abstract as mere perception.

Such a large drop could be construed as a panic measure and, given the way the financial sector is driven by rumour and confidence, this might not be the good thing it looks at first glance.

[dirtydog]

Debatable isn't it - the City expected 1% so whether 1.5% is seen positively or negatively was a gamble by the bank.

I think there is no doubt, if there was any before, that the economy and the property market are crashing, not merely falling.

[Pumpkinstew]

Still two years left on my fixed rate. Just means losing a few quid on my rather meagre savings. :(

[phykell]

Such a large drop could be construed as a panic measure and, given the way the financial sector is driven by rumour and confidence, this might not be the good thing it looks at first glance.
Yes, that's exactly what I thought.

The European banks have only dropped their rate by 0.5% which means the UK is running at a lower rate than Europe.

It seems a very convenient way for the banks to make hay while the sun is shining though - the lending rate is the crucial one for borrowers of course and it's this which may not necessarily reduce by a corresponding degree. The longer the banks hold on to a higher lending rate, the more money they'll generate and as far as I know, the Government has no mandate to force the issue other than asking very nicely.

[phykell]

Debatable isn't it - the City expected 1% so whether 1.5% is seen positively or negatively was a gamble by the bank.

I think there is no doubt, if there was any before, that the economy and the property market are crashing, not merely falling.
The way such news is reported, I imagine we'll see the phrase, "smacks of desperation" or similar, bandied about in the media.

[A Place of Light]

The way such news is reported, I imagine we'll see the phrase, "smacks of desperation" or similar, bandied about in the media.

The trouble here is, the media influence the masses, and the masses (or rather their actions) influence the financial climate.

[Admiral Huddy]

It should be mandatory TBH and is especially ironic considering it's largely the banks who are to blame for the current situation. It was their greed and their stupidity.


Is it? You sure it's not the greed of the consumer too?

This rate cut isn't just about restoring confidence in the retail market place, but to resume stability within the banks. Once banks are confident to start lending to each other, then the economy will ease and growth can emerge.

[dirtydog]

In past recessions it has been clear with hindsight that we cut rates too little, too late. The BoE obviously wants to make sure it isn't guilty of that on this occasion. (The BoE hasn't been responsible for rates during past recessions of course, as they only gained control of them in 1997.)

[A Place of Light]

In past recessions it has been clear with hindsight that we cut rates too little, too late. The BoE obviously wants to make sure it isn't guilty of that on this occasion. (The BoE hasn't been responsible for rates during past recessions of course, as they only gained control of them in 1997.)

No, the tories managed ALL of those recent recessions all by themselves ;)

[phykell]

Is it? You sure it's not the greed of the consumer too?
Yes :)

http://www.boat-drinks.co.uk/showthread.php?t=9550

[Admiral Huddy]

You are correct but rates have been low for years now and the situation is very much unlike the last recession, where we had escalating inflation which had to be curbed by high interest rates. This is just a stop caused by lack of confidence.

[dirtydog]

No, the tories managed ALL of those recent recessions all by themselves ;)

That is why Brown gave control of rates to the central bank isn't it - so that (in theory) they would never again be influenced by political reasons. ie. Tory chancellors cutting rates before an election to create a feelgood factor, or declining to raise rates near an election even if economic conditions demanded that they did.

[phykell]

There's an interesting programme on BBC1 tonight at 19:30 I think - "Credit Crash Britain".

[Admiral Huddy]

Yes :)

http://www.boat-drinks.co.uk/showthread.php?t=9550

I still disagree. :p

I'm not saying that banks are faultless, but the consumer also has played a part in this.. Demanding higher prices for house sales, consumer greed, the wanting to borrow borrow borrow.. Credit card usage has spired out of control as people spend beyond their means. Now the banks are at fault for not regulating the amount of lending but then people are at fault for the demand in first place. The sad thing is, this happens every ten years or so and we never learn.

[A Place of Light]

I still disagree. :p

I'm not saying that banks are faultless, but the consumer also has played a part in this.. Demanding higher prices for house sales, consumer greed, the wanting to borrow borrow borrow.. Credit card usage has spired out of control as people spend beyond their means. Now the banks are at fault for not regulating the amount of lending but then people are at fault for the demand in first place. The sad thing is, this happens every ten years or so and we never learn.

The house price situation has far more to do with supply and demand economics than it has with the consumer/public.

[phykell]

I still disagree. :p

I'm not saying that banks are faultless, but the consumer also has played a part in this.. Demanding higher prices for house sales, consumer greed, the wanting to borrow borrow borrow.. Credit card usage has spired out of control as people spend beyond their means. Now the banks are at fault for not regulating the amount of lending but then people are at fault for the demand in first place. The sad thing is, this happens every ten years or so and we never learn.
Hey, I completely agree with you and I've harped on about this for years now but it has to be said that the banks were supposedly the ones in control of the money. Even bankers themselves agree that banks were negligent in terms of who they allowed to borrow from them. You only have to compare the way HSBC grants loans to the likes of RBS to understand that - I was only speaking to an HSBC person about this yesterday so there may be some bias admittedly ;)

I think you missed what I wrote:

"Make no mistake, all you people who believe your disposable income can be measured by the maximum amount you can afford to repay on your credit card are just as much to blame as the banks or anyone else. It took two to tango, and as much as they wanted to lend, you wanted to borrow."

[Von Smallhausen]

No, the tories managed ALL of those recent recessions all by themselves ;)

And Labour's handling of previous economies was any better ?

[A Place of Light]

And Labour's handling of previous economies was any better ?

Better, but not good, no.
Didn't the tories manage three recessions in ten years?
That's good going by anyones standards.

[Pheebs]

NooOOooo we're on a fixed rate darnit!! DARNIT!!

Boo!!

[phykell]

The house price situation has far more to do with supply and demand economics than it has with the consumer/public.
The housing market is another example of a largely unregulated industry running amok. It's examples like the housing industry which have caused our economy to be little more than a house of cards these days. I remember, for example, when the price of a house bore at least *some* relation to its build cost.

It's odd that houses cost so much considering modern methods and materials but look around at some of the older houses. Back when methods and materials were supposedly "crude", they were able to include designs, materials and so on, that simply could not be considered affordable these days. Even in relatively modest old houses such as my own, the internal coving is all hand-moulded plaster and would be far too expensive in terms of labour, to try and replicate in a modern house. Everything's been shaved to the bone, modern roof construction for example, yet houses are poorer quality, don't last as long and cost significantly more.

[Von Smallhausen]

Better, but not good, no.
Didn't the tories manage three recessions in ten years?
That's good going by anyones standards.

Was Britain alone in those recessions or what is a case of, as it always seems to be, the US sneezes and the world catches a cold ?

The mantel of Gordon Brown being the Iron Chancellor is bollocks. He borrowed on a huge scale and taxed on a huge scale to pay for NHS funding, which is still largely unreformed and wastes billions a year, to name but one. How much has been put away for times like this ? Not a penny.

In September, we all got a rebate in our pay packets ..... payed for by borrowing over £2 billion.

Gordon Brown failed in his promise to end boom and bust it seems, not that I blame him entirely because the credit crunch in the US kicked it all off but Gordon Brown is guilty of classic Labour in that he taxes and spends.

He raided pension funds to the tune of £5 billion and than has the audacity to say that people should save more even after being squeezed until the pips squeak.

And let's not forget that Gordon Brown inherited a very healthy economy in 1997.

[A Place of Light]

The housing market is another example of a largely unregulated industry running amok. It's examples like the housing industry which have caused our economy to be little more than a house of cards these days. I remember, for example, when the price of a house bore at least *some* relation to its build cost.

It's odd that houses cost so much considering modern methods and materials but look around at some of the older houses. Back when methods and materials were supposedly "crude", they were able to include designs, materials and so on, that simply could not be considered affordable these days. Even in relatively modest old houses such as my own, the internal coving is all hand-moulded plaster and would be far too expensive in terms of labour, to try and replicate in a modern house. Everything's been shaved to the bone, modern roof construction for example, yet houses are poorer quality, don't last as long and cost significantly more.

Sale price has less to do with cost of construction now than ever before. The house builders sell at a price they think they can get, not at construction cost+ a percentage of profit. A senior director from a national builder told me that ten years ago their ratio was 2:1, in that for every two houses they build they make enough profit to build one.
Now it's 1:1.

[A Place of Light]

Was Britain alone in those recessions or what is a case of, as it always seems to be, the US sneezes and the world catches a cold ?

The mantel of Gordon Brown being the Iron Chancellor is bollocks. He borrowed on a huge scale and taxed on a huge scale to pay for NHS funding, which is still largely unreformed and wastes billion a year, to name but one. How much has been put away for times like this ? Not a penny.

In September, we all got a rebate in our pay packets ..... payed for by borrowing over £2 billion.

Gordon Brown failed in his promise to end boom and bust it seems, not that I blame him entirely because the credit crunch in the US kicked it all off but Gordon Brown is guilty of classic Labour in that he taxes and spends.

He raided pension funds to the tune of £5 billion and than has the audacity to say that people should save more even after being squeezed until the pips squeak.

And let's not forget that Gordon Brown inherited a very healthy economy in 1997.
Nobody is suggesting that either side did badly when the other has a spotless record on the issue, but the Tories did screw up (several times) quite spectacularly. Brown has made some major mistakes in his strategy, but handing control to the BoE was one of his better ideas to prevent what the tories had done time and time again as highlighted in DD's post.

[Von Smallhausen]

Nobody is suggesting that either side did bad when the other has a spotless record on the issue, but the Tories did screw up (several times) quite spectacularly. Brown has made some major mistakes in his strategy, but handing control to the BoE was one of his better ideas to prevent what the tories had done time and time again as highlighted in DD's post.

The handing of interest rate policy to the Bank was a masterstroke, no argument there but perhaps some historians look more favourable on past Tory fiscal policy than Labour, despite some spectacular failures on their part .... ERM for example.

[phykell]

Sale price has less to do with cost of construction now than ever before. The house builders sell at a price they think they can get, not at construction cost+ a percentage of profit. A senior director from a national builder told me that ten years ago their ration was 2:1, in that for every two houses they build they make enough profit to build one.
Now it's 1:1.
That doesn't surprise me at all. I recall a builder doing some work for us and he said he often did brickie work for "house building" companies - he'd be given a budget to work to and told to get the job done for a fixed price. Of course the price wasn't enough for a high-standard job so he would have to make the necessary adjustments as required and of couse the quality of the work wasn't exactly "monitored" either - they were more concerned with appearance and meeting the budget. This is the reason snagging's popularity increased so dramatically. People were buying new houses and finding that door frames didn't fit, walls weren't straight, foundations hadn't been firmly bedded, etc.

[A Place of Light]

The handing of interest rate policy to the Bank was a masterstroke, no argument there but perhaps some historians look more favourable on past Tory fiscal policy than Labour, despite some spectacular failures on their part .... ERM for example.

Both sides have made equally stupid and costly mistakes (millenium dome anyone?), however I believe on balance that Labour is the least guilty (note, I didn't say innocent) of the two.
TBH, I'd vote for whoever I honestly believed would do the best job of running the country, and anyone who can honestly say they would NEVER vote Labour/Conservative is nothing but a fool.

[dirtydog]

The handing of interest rate policy to the Bank was a masterstroke, no argument there but perhaps some historians look more favourable on past Tory fiscal policy than Labour, despite some spectacular failures on their part .... ERM for example.

Or indeed Nigel Lawson's tax cuts in 1987 which poured petrol on the booming economy and set the seeds of the early 90s bust and recession.

Remember the days of double digit inflation?

[Von Smallhausen]

Or indeed Nigel Lawson's tax cuts in 1987 which poured petrol on the booming economy and set the seeds of the early 90s bust and recession.

Remember the days of double digit inflation?

Oh I do.

Tax cuts are a neccessity to get a slow economy moving, especially business taxes.

[dirtydog]

The trouble being that in 1987 the economy was already booming so tax cuts was the last thing it needed - although there was an election that year, hmm I wonder if that had anything to do with it!

[Admiral Huddy]

The abolishment of Miras during the laste 80s played a big part in the boom and bust years then. Panic forced the market into overdrive in an already inflating market.

Today's downturn is purley lack of confidence in the US economy and Von put it well about them sneezing. Our bank 3 months ago decided to freeze its US position by deciding not to trade in US$.

[phykell]

I think it's a bit disturbing that apparently, the only "tool" for avoiding recession, is a cut in interest rates and a figure as large as 1.5% leads me to question the BoE's probity; it's like we're wasting our joker :(

[Admiral Huddy]

How else would you restore confidence?

[phykell]

How else would you restore confidence?
It's fire-fighting now and I wouldn't know what to suggest now. What I would have suggested to have avoid this in the first place is a different matter entirely. Certainly, I'd have suggested some legislation on the way banks lend money. I'd also have suggested strict legislation on the amount a credit company can lend to an individual. Lastly, I'd have suggested strict regulation on the housing industry especially unscrupulous estate agents.

[Mark]

Due to information overload I haven't read even half of this, but I've picked out a few bits...

NooOOooo we're on a fixed rate darnit!! DARNIT!!

Boo!!
Read the small print on your mortgage to find out if there are any exit clauses or penalties, then take a stab at what your LTV is (bearing in mind the market crash) and see if you can get a better deal (you're most likely to succeed with your existing lender). T'is what I'm going to do when the rates have a chance to feed through.

Today's downturn is purley lack of confidence in the US economy.
Not true. The US may have started the contagion, but the UK also had an unhealthy obsession with debt, and that's coming back to bite now. The US is actually showing a few positive indicators (if a less steep slowdown than expected can be considered positive).

I think it's a bit disturbing that apparently, the only "tool" for avoiding recession, is a cut in interest rates and a figure as large as 1.5% leads me to question the BoE's probity; it's like we're wasting our joker :(
It's the only one the BoE have at their disposal. The other options are government spending and tax cuts - which might be fine if the National Debt wasn't spiralling out of control. None of them are guaranteed to have any effect, and indeed I suspect they won't.

[phykell]

It's the only one the BoE have at their disposal. The other options are government spending and tax cuts - which might be fine if the National Debt wasn't spiralling out of control. None of them are guaranteed to have any effect, and indeed I suspect they won't.
It might be a case of locking the stable after the horse has bolted but some decent credit legislation, as I've said before, wouldn't go amiss. For example, there's already a way for credit brokers to check out an individual. How about enforcing a credit limit on people that credit brokers were obliged to observe? Why shouldn't all credit agreements be audited against a single database preventing individuals from having the kind of plastic spending power they currently do - for example, an individual could have as many credit cards as they wish but the combined total spending limit would be spread across the cards.

Imposing such legislation wouldn't just prevent consumers from racking up huge debts, it would force the banks to lend sensibly and in a proporionate, controlled manner. That would also allow them to lend with more confidence.