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

Thrugelmir

BigJonnyB wrote: »

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

Yes. UK banks prepare their accounts in £.

So taking the rates you quoted. An outstanding $100 loan is now worth £16 more than when it was originally lent. If the exchange rate has fallen from 1:2 to 1:1.5. A 32% gain.

Yes the banks are making losses from loans defaulted upon but there are more good loans than bad. So a low exchange rate is beneficial to UK banks in the medium term.

Austin_Allegro

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'

I bet Mr Brown is dusting off the pipe and Gannex raincoat...urgh that voice in the old newsreels sends a shiver down my spine...'the purnd in yurr purcket is wurth the same'...

Adebisi

I benefit by saving just over 450 quid on my mortgage each month if it stays that way for a year thats over 5k Yay go gordon go!!

wolvoman

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?

You totally ignored business overdrafts which tens of thousands of small/medium sized companies use to maintain cashflow.

You ignored that LIBOR is reduced as a result and so mortgages are cheaper (not dropped by as much as base, but still cheaper).

You ignored the risk of deflation in the UK if interest rates are not cut to near zero. Deflation will decimate the economy much more than it currently is.

Oh and approx 25% of mortgage payers are on SVR/Tracker products. With a further 20% due to come off fixed and onto SVRs this year.

IveSeenTheLight

wolvoman wrote: »

Oh and approx 25% of mortgage payers are on SVR/Tracker products. With a further 20% due to come off fixed and onto SVRs this year.

I thought I saw a graph recently showing it was 40% on trackers already.
Let me see if I can dig it out

Thrugelmir

Adebisi wrote: »

I benefit by saving just over 450 quid on my mortgage each month if it stays that way for a year thats over 5k Yay go gordon go!!

This is GB's way of giving you a tax rebate for the capital loss on the property when you come to sell it ( and not forgetting that after the next election who ever is in power will need to raise interest rates).

StevieJ

tara747 wrote: »

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.

Didn't seem to work for the Septics

chewmylegoff

wolvoman wrote: »

You totally ignored business overdrafts which tens of thousands of small/medium sized companies use to maintain cashflow.

You ignored that LIBOR is reduced as a result and so mortgages are cheaper (not dropped by as much as base, but still cheaper).

You ignored the risk of deflation in the UK if interest rates are not cut to near zero. Deflation will decimate the economy much more than it currently is.

Oh and approx 25% of mortgage payers are on SVR/Tracker products. With a further 20% due to come off fixed and onto SVRs this year.

he also ignored the interest rate collars which mean that tracker products are unaffected by cuts below a certain level. such interest rate collars are also standard on variable rate business loans.