The Bank Of England has once again cut the bank rate by a massive one percentage point bringing the interest rate to just 2% which is the lowest it has been since 1951.

If the rate cut is passed on by lenders it should help millions of people who are struggling with debts and the cost of living and will make life a little easier for businesses struggling in the face of the consumer spending slowdown.

Most of the big mortgage lenders are likely to cut their rates to match the rate reduction though some mortgages which are based on the bank rate plus a percentage have limits on how low they drop. They have a limit that says the rate will not drop below a certain figure whatever the bank rate is.

It remains to be seen if the credit card companies can be bothered to cut their interest rates. They have shown little concern for doing so in the past and as we speak a typical credit card is charging around 19% and the bank rate as of today is 2%. No wonder the credit card companies can afford plush offices.

Let us hope that the credit card companies do respond and make some significant cuts in their interest rates. It would probably benefit more people than the cuts in mortgage rates though the amounts involved might be smaller.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

In a bold and surprising move the Bank Of England’s interest rate setting committee has cut the official bank rate by 1.5%.

In a statement released at the time they said that ‘The past two months have seen a substantial downward shift in the prospects for inflation in the United Kingdom.‘

Clearly they are concerned that there are going to be serious problems ahead causing such a cut in spending that inflation is unlikely to be the problem they previously thought.

So, the bank rate is now set at 3% while credit card rates remain around 18% and previous cuts seem to have had little impact on credit card rates.

While these rates remain so high there is little chance of indebted consumers who are struggling to repay their debts, being able to get out and spend. Spending excessively has brought us the problems we now have but at this time it seems to be in everyone’s interest to cut peoples expenses so the economy can get back to a properly working system.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

It has always been the case that some small businesses that were running successfully but having cash flow problems would be effectively shut down by the banks who refused to allow additional credit even when that credit would have been a temporary support while money owed could be collected. The banks always claimed they had to be cautious about extending such credit.
So it seems a little hypocritical that now when the banks find themselves over extended and struggling for cash, the banks are looking to be supported by the taxpayer. When we remember how extravagent these banks were when they thought they could do no wrong. The salaries and more especially the bonuses were incredible and seemed impossible to justify. It would seem the proof is now in the pudding and those bonuses were completely unjustified and based on ridiculous assumptions and expectations of profit made from risky deals that were stretching common sense to limits never before seen.

Unfortunately, we are where we are and what has gone before is just history now. There are clearly huge problems with the whole system of banking. Perhaps the whole idea of lending money that you don’t have is starting to be questioned but whatever the future holds, we are all dependent on a banking system that works so the news that the taxpayer is to take a stake in the banks is perhaps not entirely surprising. Something had to be done.
We also have a 0.5 % cut in interest rates which, if it is passed on, may help us all to deal with the after effects of years of excess spending. We are all sharing the hangover and it seems unlikely we will recover for some considerable time. Let us hope that the lessons learned mean that when we say, ‘Never Again’ we really mean it this time.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)