Interest rates cut to 0.5% and Bank of England starts quantitative easing - HotUKDeals
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Interest rates cut to 0.5% and Bank of England starts quantitative easing

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The Bank of England has cut interest rates by a half point and begun the process of pumping billions of pounds into Britain's troubled economy.
Liddle ol' me Avatar
8y, 3w agoPosted 8 years, 3 weeks ago
The Bank of England has cut interest rates by a half point and begun the process of pumping billions of pounds into Britain's troubled economy.
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Liddle ol' me Avatar
8y, 3w agoPosted 8 years, 3 weeks ago
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#1
how does it work when it rises? is it at certain increments per period or what?
#2
that happened in the great depression didnt it?? ud have to spend ur salary asap as prices of bread was rising by the miunute due to the mad inflation because of extra money in the economy floating about....

i realy dont understand how extra money helps?maybe im naiive..can someone shed some light on this?
[mod]#3
kungfu
how does it work when it rises? is it at certain increments per period or what?


Government discretion. It is raised to curb inflation and to stop high rates of lending. Thats why we are where we are...banks loaned too much money.
[mod]#4
magicbeans
that happened in the great depression didnt it?? ud have to spend ur salary asap as prices of bread was rising by the miunute due to the mad inflation because of extra money in the economy floating about....

i realy dont understand how extra money helps?maybe im naiive..can someone shed some light on this?


I am sure its money given to the banks to help them start lending and then more people save with them and then hopefully rates go up...
#5
Does that mean we can print money too? No, its only fair!
[mod]#6
They are NOT printing money Liddle.
1 Like #7
magicbeans
that happened in the great depression didnt it?? ud have to spend ur salary asap as prices of bread was rising by the miunute due to the mad inflation because of extra money in the economy floating about....

i realy dont understand how extra money helps?maybe im naiive..can someone shed some light on this?


from my old economics lectures the thinking behind printing more cash is that the more money thats put into the economy then the more people will spend giving pretty much everything a boost.

Whether that happens or not is debatable as people may just stick it in the bank waiting for things to improve but you'll get a better answer shortly. I spent most of the lectures in the back row playing snake on my mobile.:thumbsup:
1 Like #8
magicbeans
that happened in the great depression didnt it?? ud have to spend ur salary asap as prices of bread was rising by the miunute due to the mad inflation because of extra money in the economy floating about....

i realy dont understand how extra money helps?maybe im naiive..can someone shed some light on this?


That is inflation as you say MB. Think also Zimbabwe now

At the moment we're suffering deflation - things costing less. As ^^^ making money available is to try to stimulate growth by people buying things more. Those with mortgages have lots more available to spend as a result of interest rates cuts; those who live on their savings have a lot less. It's a balancing act.
More economic growth = more taxes and then the repayments of all the gov borrowing will have to commence. A few years of economic crisis ahead.
#9
ants97
from my old economics lectures the thinking behind printing more cash is that the more money thats put into the economy then the more people will spend giving pretty much everything a boost.

Whether that happens or not is debatable as people may just stick it in the bank waiting for things to improve but you'll get a better answer shortly. I spent most of the lectures in the back row playing snake on my mobile.:thumbsup:

oh!! ok thanks! and omg snake on the nokia was THE best!!

chesso
That is inflation as you say MB. Think also Zimbabwe now

At the moment we're suffering deflation - things costing less. As ^^^ making money available is to try to stimulate growth by people buying things more. Those with mortgages have lots more available to spend as a result of interest rates cuts; those who live on their savings have a lot less. It's a balancing act.
More economic growth = more taxes and then the repayments of all the gov borrowing will have to commence. A few years of economic crisis ahead.

thanks chesso...ur clued up!
#10
Interesting when you say, chesso, that people with mortgages will have more money to spend as the interest rates are going down.
I personally think that the only people gaining from the interest rate cuts are those who have a tracker mortgage. I have noticed very little difference in the amount we are paying on our mortgage, the Yorkshire have only passed on 2 rate cuts I believe. Our rate is still at 4.99%, which to me is a shocker seeing as the BOE rates are now so low. We had an appointment a couple of weeks ago with the Halifax to talk figures with regard to their 2-year fixed rate of 2.99%, but when we got there the advisor told us that that rate had been withdrawn that day!!
Nowhere is willing to lend people at their standard variable (especially places like the Nationwide and Lloyds TSB who have lowered their rate in line with the cuts) even when the prospective borrower has a very high LTV (lots of equity in their property).
I know there are those who have seen payments fall sharply, but is anyone else having this same problem of their mortgage payments hardly having changed at all?
#11
magicbeans
oh!! ok thanks! and omg snake on the nokia was THE best!!




Yes it was but its also one of the reasons why I'm not an accountant lol.
#12
magicjay1986
They are NOT printing money Liddle.


Technically, you might be right. Changed the heading to be accurate :)
#13
shibi din
Interesting when you say, chesso, that people with mortgages will have more money to spend as the interest rates are going down.
I personally think that the only people gaining from the interest rate cuts are those who have a tracker mortgage. I have noticed very little difference in the amount we are paying on our mortgage, the Yorkshire have only passed on 2 rate cuts I believe. Our rate is still at 4.99%, which to me is a shocker seeing as the BOE rates are now so low. We had an appointment a couple of weeks ago with the Halifax to talk figures with regard to their 2-year fixed rate of 2.99%, but when we got there the advisor told us that that rate had been withdrawn that day!!
Nowhere is willing to lend people at their standard variable (especially places like the Nationwide and Lloyds TSB who have lowered their rate in line with the cuts) even when the prospective borrower has a very high LTV (lots of equity in their property).
I know there are those who have seen payments fall sharply, but is anyone else having this same problem of their mortgage payments hardly having changed at all?


Excellent points Shibi. I, of course, am in the saver group, so have less money available. You are right that there is a lot of variation in the amount by which the mortgage repayments have reduced. I think that as more money becomes available and with increased gov pressures, then the morgage rates should fall. This is the underlying problem with the credit crunch. Keep looking I think is the watch word and don't get tied in too tightly over a longer term.
However, even if there is an unequal lowering of mortgage payments, there is still more in the monthly pockets of those with mortgages ( except the reamining fixed raters!) so over-all lots more spending power and the hope is that it will be spent. I think that there is some evidence that it is happening.
#14
magicbeans
that happened in the great depression didnt it?? ud have to spend ur salary asap as prices of bread was rising by the miunute due to the mad inflation because of extra money in the economy floating about....

i realy dont understand how extra money helps?maybe im naiive..can someone shed some light on this?



well historically this is something that always seems to work, you only have to look at the Weimar republic in the 1920's to understand what a foolproof idea this is.

also, can anybody explain where all the money went from the government selling off the gold reserves?
#15
chesso
Excellent points Shibi. I, of course, am in the saver group, so have less money available. You are right that there is a lot of variation in the amount by which the mortgage repayments have reduced. I think that as more money becomes available and with increased gov pressures, then the morgage rates should fall. This is the underlying problem with the credit crunch. Keep looking I think is the watch word and don't get tied in too tightly over a longer term.
However, even if there is an unequal lowering of mortgage payments, there is still more in the monthly pockets of those with mortgages ( except the reamining fixed raters!) so over-all lots more spending power and the hope is that it will be spent. I think that there is some evidence that it is happening.



Just saw this on Yahoo news, thought it was somewhat relevent (for those who are looking for a mortgage):

Today's rates are a far cry from the deals of 2007 with margins above the base rate between 1.95% and 3.84%. Remember that C&G once offered a tracker deal at BBR - 1.01%. But now, as you can see, the lender's latest deals offer rates between BBR + 2.69% and BBR + 3.59% (giving current rates of 3.69% and 4.59% respectively). These mortgage rates might seem quite cheap, but that's only true while the base rate remains low.

Imagine you went for Halifax's lifetime tracker at BBR + 3.84%. Today your mortgage rate would be 4.84%, but if the base rate rose back up to say, 5% during the term of the loan, your mortgage rate would climb up to a whopping 8.84%. Thankfully, Halifax doesn't deduct any early repayment charges if you decide to remortgage with a new lender later on.

So, before you make your final decision, you'll have to ask yourself whether a tracker that's affordable now is likely to stay that way in the future.

In this way, the choice isn't as clear cut as you might hope. After all, if you think the base rate is likely to stay low for the foreseeable future, a short-term tracker deal could work out well for you. As could a lifetime tracker with no penalties if interest rates start rising again and you need to get out.


For the full news story.
#16
chesso
Excellent points Shibi. I, of course, am in the saver group, so have less money available. You are right that there is a lot of variation in the amount by which the mortgage repayments have reduced. I think that as more money becomes available and with increased gov pressures, then the morgage rates should fall. This is the underlying problem with the credit crunch. Keep looking I think is the watch word and don't get tied in too tightly over a longer term.
However, even if there is an unequal lowering of mortgage payments, there is still more in the monthly pockets of those with mortgages ( except the reamining fixed raters!) so over-all lots more spending power and the hope is that it will be spent. I think that there is some evidence that it is happening.


Interesting you saying the mortgage rates should fall - that's the first time I've heard anyone say that. Hopefully it will be the case.
Big shame about savers I agree - the difference between rates offered to borrowers and rates given to savers is far too wide and something really needs to be done about that (what, I have no idea. I'm no economist and I tend to see things very simplistically).
And talking simplistically, will a lot of people not be in big, big trouble a few years down the line if they borrow lots of money now to buy cheap(er) housing at lower interest rates? When interest rates begin to rise again people are not going to be able to afford to repay what they borrowed? Am I missing something here, or am I just being too cautious? If I had a lot more money in my pocket each month after paying the mortgage I would be inclined to save it and then pay off a chunk of the mortgage at the first opportunity. I would be much too scared to borrow more money.

EDIT : I think what I have said here is more or less what the poster above me has said as well.
#17
Basic idea is that the Bank of England invents money and uses this to buy products from the banks (these are loans to the UK govt.) - the idea then is that banks have more money in their balance sheet as less outstanding debt and more money - in theory they dont want to hold lots of reserves as it doesnt do a great deal for them so should encourage them to use that extra money to lend to customers....customers borrow money, more money moving aorund the general economy (if they lend it!)........didnt quite qork when tried in Japan as coupled with massive governent spending (so they dont know if it worked or not when it was tried properly)
#18
shibi din
Interesting you saying the mortgage rates should fall - that's the first time I've heard anyone say that. Hopefully it will be the case.
Big shame about savers I agree - the difference between rates offered to borrowers and rates given to savers is far too wide and something really needs to be done about that (what, I have no idea. I'm no economist and I tend to see things very simplistically).
And talking simplistically, will a lot of people not be in big, big trouble a few years down the line if they borrow lots of money now to buy cheap(er) housing at lower interest rates? When interest rates begin to rise again people are not going to be able to afford to repay what they borrowed? Am I missing something here, or am I just being too cautious? If I had a lot more money in my pocket each month after paying the mortgage I would be inclined to save it and then pay off a chunk of the mortgage at the first opportunity. I would be much too scared to borrow more money.

I totally agree Shibi, with your cautious outlook. That's what I would do as well.
The number of repossessions is rising all the time as mortgage lenders continue to refuse to follow gov suggestions and unemployment rises.
The thing is that a recession leads to unemployment , less tax revenue, deflation and some sort of stimulus is vital. The VAT cut was one try and didn't make much impact. I suppose that even if you save the money than if you fall unemployed you might avoid repossesion so it would still be a good thing over the whole economy.
IMO, the gov and the Bank of England have to do their utmost to stimulate the economy and then take serious steps to regulate the money markets etc etc on the same lines as Germany. Not to say that Germany isn't in recession, because it is.
Perhaps Pres. Obama will save us all.:thumbsup:
1 Like #19
chesso
I totally agree Shibi, with your cautious outlook. That's what I would do as well.
.................................. Perhaps Pres. Obama will save us all.:thumbsup:



Now wouldn't that be something!!!! Gawd bless Americaaaaa! :roll:

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