The economic storm clouds gather
Fraser Nelson 6:13pm
I’m not superstitious, but if I was Gordon Brown I wouldn’t take much comfort in tonight’s figure for the one-month LIBOR interbank interest rate. It’s an ominous 6.66% - having fallen just 0.09 percentage points since the 25-point cut in Bank of England base rate. The more important three-month LIBOR is down a paltry 3 points to 6.61%. This is the market bank rate which will affect our mortgages: it is what matters. And its not going anywhere fast. Ray Boulger from John Charcol has just talked me through it. Most mortgage lenders are just ignoring the BoE rate cut, he says. Egg has today cut its Standard Variable Rate by just 15 points, but even that's generous compared to the deafening silence from Bristol & West and the building societies (Nottingham, Skipton etc).
The lever which the BoE once used to yank down our mortgages and stimulate spending is broken. Brown gave “independence” to a Bank of England which is losing control of UK interest rates. Just a quarter of today's mortgages are directly linked to BoE base rate, says Boulger. Brown’s mission now is to pretend he’s in control.
PS Ian King in The Sun gets it right.
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Comments
TGF UKIP
December 7th, 2007 7:40pmAnds it could get worse, much worse. Ominously things are now beginning to point to Northern Rock being unsaleable at virtually any price, leaving only the humiliating outcome of nationalistaion. While this will be humiliating for the City and its Regulators, their humiliation will be as nothing compared to the Government's as angry NR shareholders embark on litigation alleging negligence and incompetence on the part of the Government and the BOE and I bet Mervyn King already has his ducks lined up.
Edward
December 7th, 2007 11:06pmThe wide deferential between LIBOR and the BOE base rate was, and is, totally preventable in my opinion. In fact the whole Northern Rock saga requiring the BOE emergency Liquidity Support Facility and the putative rescue by Mr R Branson (or whoever) was totally preventable. All the BOE needed to have done (in consultation if required with Mr Darling at the Treasury and Mr McCarthy at the FSA) was to loosen their Discount Window arrangements. These are far too restrictive (only overnight loans and a very narrow range of qualifying collateral), the BOE should have done what the FED and ECB did, and that is to allow authorised financial institutions to 'repo' a much wider range of 'paper' (say down to BBB+ status, including sovereign, corporate, mortgage and ABS paper) and up to 3 or even 6 months. And at a commercial rate, not a penal rate. This would, then, and even now, more closely align the BOE base rate with LIBOR (up to 6 months in my example), thereby substantially mitigating, or even totally nullifying, the liquidity crisis, both for Northern Rock and for the UK system as a whole. Moral hazard? Not a bit of it. This loosening of the discount window would have benefited all banks (aka providers of finance to business) equally with no single management board being 'saved' from their mistakes. The Tripartite managers should hang their heads in shame. But more so Mr Brown and his sidekick Mr Balls who oversaw and implemented this arrangement . As we have it now this liquidity crisis results in banks being unwilling to lend to each other, and then increasingly unwilling to lend to business, resulting in whatever recessionary effects there are becoming even deeper. This short sightedness simply has to stop - now. Just my 2p. Edward
Frank Leader
December 8th, 2007 7:16amDoubtless Brown will try to blame the Tories.
David Lindsay
December 10th, 2007 4:03pmTelevision adverts for pawnbrokers. After that, is anyone still in doubt that there is a recession coming?