In a concerted European move, the Bank of England, along with ECB acted decisively to cut interest rates by 0.5%. It is hoped that this cut in rates will help restore some optimism to the banking sector and wider economy.
However, a cut in interest rates, is likely to be insufficient to prevent the economy sliding into recession because:
- Banks balance sheets are in a miserable state.
- Falling house prices means people will still want to avoid buying, even though rates are lower.
- Banks may not pass the rate cuts onto consumers as they try to increase their profitability.
- Global downturn will impact on UK economy, which has a strong export sector.
Bank Bailout
The perilous state of the UK’s banks is highlighted by the £500bn scheme to help restore confidence in the banking system.
The cost to the taxpayer is initially £50bn. This is in return for £50bn worth of shares in the leading banks who need the extra cash. The other £450bn involves government guarantees for bank debt and a £200bn injection into the short term money markets. More details at UK Bank Bailout
It’s a good start or nothing else. At the moment I’m becoming more and more in favour of the government nationalising the whole lot!