Wednesday, 21 November 2012

No further interest rate cut

The Bank of England's interest rate setting body, the Monetary Policy Committee, has ruled out a further cut in the Bank's base rate "in the foreseeable future".

This is from the minutes of the latest MPC meeting:

"37 The Committee also discussed the likely effectiveness of reducing Bank Rate to below 0.5%.Over the past few months, Bank staff had consulted with the FSA and the Building Societies Association on the possible consequences.  In the light of that, the Committee had re-examined in detail the desirability of such an option.  While it would be beneficial for some existing borrowers, there were concerns that a cut in Bank Rate might prove counterproductive for aggregate demand as a whole.  Staff analysis had concluded that a further cut in Bank Rate would be likely to cause a reduction in the profitability of some lenders, especially building societies, because of the prevalence of loans with interest terms contractually or closely linked to Bank Rate.  That would weaken their balance sheets and they might have to respond by increasing other loan rates or restricting lending. Viewed against the backdrop of the Funding for Lending Scheme (FLS), and the potential for building societies to play a material role in increasing lending, the Committee judged that it was unlikely to wish to reduce Bank Rate in the foreseeable future."

Thanks to Save Our Savers for pointing this out...

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