Interest rates are slashed – and now the banks must follow

by Kate Pritchard - Thursday, 6th November 2008 -

In the most dramatic move in a generation, the Monetary Policy Committee has cut the cost of borrowing by 1.5 per cent. While this will restore the confidence of entrepreneurs, the Forum of Private Business (FPB) says banks must pass on the cut in full.

“The banks must take heed of the Bank of England’s decision when determining their inter-bank lending rate policies,” says Phil Orford, chief executive of the FPB.

“A cut in the three-month LIBOR rate would lead to a reduction in interest rates for small businesses and property purchasers, and improve the availability of cash-flow based finance for small firms."

Orford says recent changes to mortgage lending rates were “very worrying”. In a barefaced attempt to offset the effects of interest-rate cuts, lenders have removed tracker rates and raised the tracker margins by 0.5 per cent.

“The fact that the cut in interest rates is not being passed on to borrowers and is, instead, being absorbed into lenders’ profitability means that not only are lenders taking advantage and profiteering, but they are blatantly ignoring all pressure to improve lending provision,” he says.

Banks, you've been told.

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Interest rates cut by 1.5 per cent

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