It?s almost inconceivable to think that this time last year anyone would have suggested that today we would see interest rates sitting at 1.5%, but on January the 8th 2016 the Bank of England decided that more cuts were needed to stimulate the now stagnant economy.
To be in the position of Mr Mervyn King is surely not an enviable one, faced with only two choices, one to make a run and place it all on red and go to 0% or hold some back in case one more trip to the table is needed. In any event we saw the cut of 0.5% being announced yesterday and although there were no surprised or startled faces it is fair to say that many people are now beginning to ask what we do next if this fails to work. Well I for one don?t think we will have to wait too long before we have our answer as it is now clear that cutting interest rates in this way is doing very little to free up the blocked credit lines within our banking and finance sector. Reports from the within the Treasury would suggest that more radical plans are now being formulated in an effort to stave off a further decline in the economy, one suggestion is they are working on plans for much more serious measures, known as “quantitative easing”. Alistair Darling yesterday denied reports that he was planning to “print money”, and that is the wrong definition of the kinds of measures under consideration; but there is no doubt that using taxpayers’ money to buy government debts , one of the steps under consideration , would be a radical, and a very risky step, requiring Darling’s approval. The Treasury is already drawing up a protocol for how quantitative easing might work, and King and his colleagues may be keen to postpone the day when they effectively hand over the reins to Westminster. They are also waiting on a package of government support measures for the credit markets, which are aimed at helping to unblock lending.
The reality of yesterdays move as far as the man in the street is concerned hits home in two ways, you may be forgiven for think that if you have a mortgage you will see a reduction in your monthly expenditure, but for the vast majority of us that won?t be the case as we are either on a fixed rate or a tracker which in most cases will have already of hit the maximum reduction available under your agreement. And for those of you who have been prudent over the years and have managed to accumulate savings, you will be the biggest victims with many savers who rely on interest payments to live on, seeing their income drop by as much as two thirds. It has even been suggested that a further cut could see banks charging us to look after or deposits. We will be keeping a close eye on events as they unfold but expect to see more and more unusual methods employed in this epic fight against recession as we are now very much in unchartered territory.
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