Sky News business editor Michael Wilson

It had to be done, but it won't have any effect on the mortgage freeze.

What's caused the home loan market to dry up was and is beyond the direct control of central banks.

The credit crunch has a long way to run yet.

Now it transpires that 40% of UK lenders will cut lending availabilty to households and small businesses in the next three months. And a slightly lower rate won't help the one million who are coming to the end of their fixed-rate mortgage deals.

So no matter how much the Bank of England loosens its official monetary policy, our personal monetary conditions are tight and will get tighter.

And even if the Bank continues upon its expected course of heading towards 4% by the end of the year, it may not be enough to cheapen the mortgage market, and in any case may be using up the Bank's own firepower - and its only weapon is the level of the interest rate - too soon. There may be more trouble ahead.

'The economy has to go through a thorough rebalancing and it would be a mistake to think it's going to be painless.' says respected City commentator Richard Jeffrey,'It will have to be the level of personal debt which needs to readjust.'

I'm sure I don't need to tell you what that means.

And it will be all the more painful because the Government has no tax to give back. After the years of plenty, you'd normally expect that public finances would be in better shape. But there's nothing left to fund a US-style tax stimulus package, so we'll limp on for the forseeable future.

The Government and the governed are inextricably bound together in a debt crisis of their own making.

Comments

[Gordon (Glasgow) 14 Apr 2008 17:32:55]

We are now seeing the unfolding of the preamble, to create financial situations proposing new global currencies to eventually be rolled out for the NEW WORLD ORDER!!

Do your research people!!

G :-)

[Khalid 11 Apr 2008 00:50:59]

Sir
Insofar as the Bank within England, how ironic they charge very little amongst themselves but charge extortionate interest to consumers, without whom they would have nothing.
But seriously, thus far as the BoE, understandably it has a duty and obligation to ensure a sustained economy whilst at the same time clearing up the mess that many a politcian leaves behind.
As for the others, well, not only do they promise you the earth and ensure that their rotting foundations dont interefere with yours, but has any one noticed they never deliver what they say?
Naturally, for the true benefit of such rate cut to be felt by [the [Thompson Twins] what this country needs is legislation that states, [Sister of Mercy] shall pass on any such rate cut in the event base rate is 10% or lower. That should bring a cheer or two.

[Elizabeth Davies Cape Town 10 Apr 2008 17:51:19]

Labour were never very good at looking after the treasury, have now pay later was always their way.
So where does that leave your ordinary Joe. You need a 10% deposit for a loan...oh dear, they will be asking ..can I use my credit card for that.
Wake up Britain the real world awaits you.

[tony 10 Apr 2008 16:59:43]

250 basis points ?

Not exactly a move to stimulate anything is it - more like the sort of thing one does when looking for a slight correction within a relatively benign outlook. Which the IMF and BoE tell us it isn't a benign outlook.

As for Brown, all he is utters is 'Growth,Growth,Growth' by which he means his Tax Take from the British Taxpayer including his 10% raid on the poor underclasses.

How about some stability and protection of assets instead of squandering on questionable spends such as number dyslexic Jowell's Olympics black hole?

Brown and Darling are financial incompetents walking around in a daze spouting 'Don't worry, all is ok' nonsense.

Events will overtake them and the Brits will suffer from the Chancellor's inability to plan and manage for the financial turbulance being stored up and growing by the day.

Credit squeeze is here and Neo-classic Endogenous Growth theory is not producing the growth.

[Gordon P Hoare Wallasey 10 Apr 2008 15:06:01]

The Government/Treasury do not seem to be aware that there is and has been too much cash available worldwide creating the subprime excess and that reducing interest rates is simply adding to that problem. Helping house buyers by lowering rates is a nice gesture but nothing more.

[PURPS 10 Apr 2008 15:03:37]

So the Bank is independent and my uncle is called Shirley.

The bank had the chance to move market rates >Libor< affecting the general economy to the level of 5.25% where they considered was a level appropriate to press down on inflation. Therefore, the cut should have been 75bp the BOE needs to get ahead of the game and tackle the credit crunch.

They failed because they are academics and have no clue.

The problem was the failed budget and our failed political masters, Darling should have indicated in his Budget speech that the target for inflation would be raised temporarily to 3% to give the BOE the opportunity to manage the economy through the Credit Crunch. All future wage negotiations will therefore be held at the 2% level, as we will move back to this target in the near future.

Secondly, he should have reduced the Tax on Petrol and Diesel at the pump; we all know the Global warming debate is a cover for reducing the West’s reliance on despot Middle East leaders. The transfer of wealth from the West to Arab Oil producers is a major problem and needs urgent attention.

The UK cannot stand in the way of Global warming and should not damage its economy trying to be Green. It will end in tears, especially as the UK adds only 2 pct to carbon emissions.

As I have commented before Brown was the worst chancellor ever, he had no idea and was lucky; unfortunately, for us Darling, is even worse and is not a lucky chancellor. We have lived off the back of Chinese cheap labour and the only way to amend our economies is for drastic action, aggressive forex intervention to drive the Euro down and push the dollar up a revaluation of 10% in the US unit is required coupled with a 15% rise in the Chinese Yuan against the US unit.

This action would see Chinese growth and inflation curbed, see the Euro zone able to lower rates and bring US priced commodities lower.

Also as a question Michael, why can the BOE not establish a money market clearing house where they are the counterpart to all the banks. Thus reducing Libor rates as the BOE acts as the market arbiter, both borrowing and lending to the market participants for collateral pledged and for a small profit margin.

This would stop banks hoarding cash and see the market return to normal.

The Purps