What is the point of these interest rate cuts? Even if they are 0%?

The_White_Horse

Next to nobody benefits from them.

Savers lose.

Anyone not on a tracker/svr mortgage gets no benefit

Anyone with unsecured loans get no benefit

Anyone with credit card debt gets no benefit.

Savers won't go out spending because they get less interest. they will probably save more to make up the shortfall.

The whole thing is just ridiculous, as all it is doing is helping about 10% (if that) of the population on tracker mortgages/SVR.

Unless I am missing the intention. I thought the reduction was to (a) put more money in peoples pockets so they spend more and (b) at the same time, allow debts to be paid off quicker.

reducing the rates doesn't affect the banks ability to lend does it?

Old_Slaphead

Lower rates for savers and cuts for A FEW borrowers - enables banks to become profitable so that they can repay government debt and fund future bonuses.

However, Gov't income will reduce because of less tax on interest and more social costs (care homes etc).

Is there any overall benefit ? If so, to whom?

Kez100

Sterling falls. Ought to help trade deficit. Makes Britain more attractive for tourism. Helps boost profitability of banks. Makes imports more expensive and encourages inflation in the hope we will avoid deflation. Helps maintain mortgage and secured lending rates relatively low at a time when risk is growing and you would expect rates to increase.

All arguable of course - but it is the wider economy this is being done for not the man in the street.

The benefit is the hope we will recover in a better shape than we would if rates were kept high.

I am not saying we will or that I agree.

Thrugelmir

The_White_Horse wrote: »

Next to nobody benefits from them.

Savers lose.

Anyone not on a tracker/svr mortgage gets no benefit

Anyone with unsecured loans get no benefit

Anyone with credit card debt gets no benefit.

Savers won't go out spending because they get less interest. they will probably save more to make up the shortfall.

The whole thing is just ridiculous, as all it is doing is helping about 10% (if that) of the population on tracker mortgages/SVR.

Unless I am missing the intention. I thought the reduction was to (a) put more money in peoples pockets so they spend more and (b) at the same time, allow debts to be paid off quicker.

reducing the rates doesn't affect the banks ability to lend does it?

Interest rates are used to steer the economy, ie control inflation, money supply etc. The interest that savers receive and mortgage holders pay is a side effect of the interest rate policy not its aim.

mbga9pgf

Sterling tumbles against the dollar.

Which reduces the losses incurred by the banks as the assets they bought were priced in US$

Thats why they dont give two hoots about the exchange rate. THey need it to fall ti minimize the bail out.

Old_Slaphead

Why faff around then - why not just devalue sterling.

After all, it's hardly new - Labour has history.

Pound in you pocket and all that - I can see Clown doing a 'Wilson'

BigJonnyB

mbga9pgf wrote: »

Sterling tumbles against the dollar.

Which reduces the losses incurred by the banks as the assets they bought were priced in US$

Thats why they dont give two hoots about the exchange rate. THey need it to fall ti minimize the bail out.

if assets/debts are priced in US$ then things in dollars get more expensive as sterling falls.

If I have $100 of debt at 2 US$ to the pound = £50

If I have $100 of debt at 1.5 US$ to the pound = £66 odd

If I have $100 of debt at pound/dollar parity = £100 of debt

Unless I am missing something?

JB

Radiantsoul

Old_Slaphead wrote: »

Why faff around then - why not just devalue sterling.

After all, it's hardly new - Labour has history.

Pound in you pocket and all that - I can see Clown doing a 'Wilson'

You are confused. We operate under a fiat money system and have since the 1970s, so you cannot simply devalue a currency as no-one is offering convertability of their currency.

tara747

Radiantsoul - I think you may be mistaken! You can indeed devalue your currency if you have control over your own interest rates, as the UK does.

tara747

FWIW, I think the stupidly low IRs are a disaster. This government is doing incalculable damage to you and your children and your grandchildren.

purch

You can indeed devalue your currency if you have control over your own interest rates, as the UK does

The market decides the value of your currency.

Governments/Central Banks can attempt to influence the value, by their actions both fiscal and monetary, but they do not always work.

Relative Interest Rates have a very low correlation to Relative Currency Values over the medium to longer term.

The market will decide the value of GBP in relation to other currencies.