Question Why lower interest rates?

[rynnor]

I dont understand why they will bother to lower them again today?

1. The drops dont get passed onto loans/overdrafts and most mortgages. True some tracker mortgages can theoretically gain but many have a minimum rate they wont go below and many have already reached it.

Mortgage rates are generally higher now than before we started dropping the interest rate.

2. It hurts savers, people on fixed incomes like pensioners and it drives up the price of annuities which punishes any poor souls who are about to retire.

3. It hammers sterling - makes it less atractive to foreign money and increases the chance of a sterling crash - as net importers it hurts our balance of payments also.

Basically it seems a dumb idea yet we seem dead set on further cuts???

 

[Uara]

its the Keynsian(sp) method of trying to boost ones economy I believe. With lower interest rates, the government believes that people are less likely going to save and thus going to buy more pointless things as the return from savings arn't enough. In theory that should boost the economy, but as you've mentioned in reality its not the biggest help to the country. (I may be completely wrong, correct me if i am)

 

[Scouse]

Hey, if sterling crashes then we'll have to join the euro, won't we

 

[taB]

Pfft, they won't have us at this rate

 

[Scouse]

Thank fuck.

 

[raw]

I have also been wondering how much more good it will do.

My halifax current account is down to something stupid like interest rate of 2.5%, almost halved i think. I do have a fixed regular saver though still up at 7 but i'm capped at how much i can put in that each month which sucks a bit.

 

[00dave]

Hey, if sterling crashes then we'll have to join the euro, won't we

That does seem to be fat boy Browns plan doesn't it. Is there a counter somewhere that counting down the days until labour fuck off!!!

 

[Moriath]

well im on the standard variable rate for my mortgage and am getting full benefit of the rate cuts tyvm mr bank of england

 

[00dave]

Well thats one but what about those of us trying to get onto the property ladder and struggling to save for that 15-25% deposit for a half decent mortgage before the prices shoot up again.

Seems this plan punishes those of us who were/are sensible and rewards the idiots who lived/live beyond their means.

 

[Chilly]

It also rewards those who have a perfectly reasonable mortgage (which is probably most mortgage holders, tbh).

 

[00dave]

It also rewards those who have a perfectly reasonable mortgage (which is probably most mortgage holders, tbh).

Not if the reports of mass repossession is anything to go by. If you have a reasonable mortgage then well done to you, but spare a thought for those of us who will probably be shafted before we get to the first rung.

 

[ECA]

Holla!

This rate cut shows just how screwed our economy is at the mo and hopefully the pound crashes further!

 

[MYstIC G]

Why would you want the pound to crash?

 

[Moriath]

having lower interest rates makes the pound less attractive to invest in so it continues to go down thats one bad thing about this.

But i think that is outweighed by the 170 odd quid i saved per month on my mortgage as a total of all the rate cuts assuming todays is passed on in full

 

[ECA]

My hourly rate has gone up from £16 to £24 over the last few months because of the pound sliding.

Lets just say I'm not exactly unhappy about it

 

[Chilly]

Not if the reports of mass repossession is anything to go by. If you have a reasonable mortgage then well done to you, but spare a thought for those of us who will probably be shafted before we get to the first rung.

I dont have a mortgage, I rent a flat in Shep. Bush. "Mass reposessions" is media hysterics. Ok, so repos have gone up by 100% or something but they were never particularly common. I dont know of anyone who has been repod, except in the media (unsurprisingly).

 

[Moriath]

aye 100 % rise from a low base isnt really much

 

[kirennia]

Why do I still get the feeling this has all been brought on on purpose pushing us towards the euro...

 

[dysfunction]

I'm all for the Euro! Bring it on!

 

[ECA]

+1 for wanting in the euro.

 

[Tom]

Personally I'd be quite happy to see the return of the Florin.

I think we should revel in our eccentricity.

 

[Raven]

Its another desperate attempt to win the next election, it doesn't matter that everyone will be proper fucked in two years time. So long as enough stupid people vote Labour.

Can't say I have a problem with the Euro in itself its the fact that we will lose even more of our self governance to Europe. The day I get to vote MEPs in office is the day I am happy for them to have any rights to govern us. Though nobody can screw it up as bad as the wankers we have in power at the moment.

 

[old.user4556]

The base rate drop was to encourage more PS3 sales in the UK.

/runs away before Will sees this post.

 

[old.user4556]

But seriously...

It depends on your situation I suppose; if you're on a variable rate / tracker mortgage and your lender passes on the rate cuts then you're quids in. However, if you're a pensioner and/or living off a large savings deposit and your savings rate is cut, then you're obviously out of pocket. That said, when the rates were up at 5% they were shite for savers even then - unless you've got hundreds of thousands in savings does it really the difference between a comfortable life and abject poverty?

£100,000 at 4.5% a year = £4500, £375 a month (less tax)
£100,000 at 2% a year = £2000, £166 a month (less tax)

£209 a month less I suppose, but it's not make or break, but I suppose I'm over simplifying it.

My opinion? I'm not an economist, but I think we need to stem the falling house prices, get back to at least a steadying of house prices and also reduce the chances of repossessions (which will only fuel further house price drops). However, if the banks don't do their bit then the rate cut will be pretty futile.

I agree with the euro suspicions though , I wonder if it's a conspiracy to push us into it.

Edit: i've just thought that now they've dropped the rates low, if people start to snap up properties then the rates go up eventually to "stem increasing prices" then those people that were stretching at 2% will be fucked at 4%, then the whole sub prime problem could repeat itself. *shrug*

 

[ECA]

False markets only make the problem worse in the longrun.

 

[Chilly]

The euro wont have us if our rates are fucked. The rules apply to us as well.

 

[ECA]

The euro wont have us if our rates are fucked. The rules apply to us as well.

Eurozone interest rates are 3.25% and will most likely be cut to 2.75% next review.

 

[Ch3tan]

More panic decision making from Brown and the Bank of England. Boosting the economy short term is pointless, fooling people into thinking they have more to spend at xmas is not going to help one bit come the new year.

 

[pcg79]

the interest rate cuts arent necessarily a short term view. recall that the boe has an inflation target of 2%.

like someone before said, the economics says that in 'normal' situations, when rates are cut (in times of lowered inflation expectations) the attraction to saving money is vastly reduced, the attraction to borrowing increases and as a result demand will increase leading to an increase in output. (or something to this effect). super.

unfortunately, these arent normal times. people are fearful for their jobs and a steady stream of income. any savings made by reductions in rates is therefore likely to be put into savings accounts (regardless of interest paid). unfortunately, that means no one is saving and eventually we could get into a situation of deflation (decreasing prices).

while deflation sounds brilliant, it sucks really - you actually have less money, but your debt remains the same - this is very bad times on a big scale.

the three points raised at the beginning :
1. The drops dont get passed onto loans/overdrafts and most mortgages. True some tracker mortgages can theoretically gain but many have a minimum rate they wont go below and many have already reached it.

Mortgage rates are generally higher now than before we started dropping the interest rate.

2. It hurts savers, people on fixed incomes like pensioners and it drives up the price of annuities which punishes any poor souls who are about to retire.

3. It hammers sterling - makes it less atractive to foreign money and increases the chance of a sterling crash - as net importers it hurts our balance of payments also.

1. well, a lot of banks will now be under pressure to drop rates. sentiment is such that if a big name passes the cuts on, smaller lenders may lose significant market share. besides, the biggest lenders (%-wise) are the ones with most government cash - government pressure will force it (hopefully).
mortgage rates are higher now because banks are fearful of losing anymore cash.

2. sucks to be a saver, pensioner or retiree. unfortunately, the latter 2 categories dont really dont form the majority of the population (yet...) and dont spend as much as the workforce. on the other hand, if public demand doesnt pick up id like to see more freebies for these categories (winter fuel etc).

3. an unfortunate effect but hey, deflation is worse.

 

[Yoni]

it sucks being paid in sterling but living in europe also :|