Thursday, February 11, 2010
Drip feed removed, patient goes into arrest
Yesterday's surprisingly dovish Inflation Report from the Bank of England has got experts scratching their heads. Based on what the Bank is now saying, it seems the Monetary Policy Committee won't be increasing the 0.5pc official Bank Rate for a while. The fact is that interest rates in the market are increasingly divorced from what you read about the official Bank Rate. Central bank support for lenders, such as the Â£400bn credit guarantee and special liquidity schemes, must start being repaid this month. Removing that source of cheap financing means lenders are being forced to return to more expensive sources of funding. The interest rates in the market that borrowers pay are rising and will continue to rise. The good news, however, is that the rates savers receive are also going up.