May 29, 2008
Sometimes the medicine takes a long time to work…
A month or so has passed since the Bank of England unveiled its £50bn-plus liquidity injection to free up the financial system.
The radical move, which could see as much as £100bn of mortgage-backed securities swapped for gilts, was designed to pump confidence into the banking market.
The idea was that our mortgage costs would come down. And small companies would be able to access loans.
Not that ministers said this explicitly, but it was the obvious aim.
So how are we faring? Libor, the rate at which banks lend to each other, is still stubbornly high. The gap between the Bank of England base rate and 3-month sterling Libor remains at 0.86 per cent.
In a nutshell, that means mortgages are not about to become cheaper. Abbey is increasing some of its fixed rate deals by up to 0.56 percentage points today - only a week after it and some rivals carried out a couple of cuts, prompting speculation that the bad days were over.
And did I mention house prices (see various FT Westminster Blogs passim)? They fell by a record 2.5 per cent in May, according to Nationwide, the biggest drop since such records began.
Call me old fashioned, but if in my business I wished to exchange financial reward for a specific set of actions I’d use a contract.
Without that contract all I’d have to fall back on is the good nature and integrity of my business associate. Given that the banks said up front that they weren’t going to hand the benefits over to their customers I don’t think Darling is in a great position to call them to task…
Posted by: Peter Dunkley | June 2nd, 2008 at 8:04 pm | Report this comment