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No drastic interest rate cuts

The Bank of England has ruled out approving drastic interest rate cuts as we have seen in the US. The US Federal Reserve has recently approved 2 drastic rate cuts that have seen the US interest rate drop to only 2.25%. However the moves, which were aimed at calming nervous financial markets are unlikely to be repeated in the UK, quashing hopes that cheaper loans would be made available to borrowers who are already suffering from stricter loan authorisation processes.

Rates of interest in the UK have dropped only slightly to 5.25% during the recent credit turmoil and the Bank says that fears over rising inflation are the reason why further, larger cuts will not be approved. Inflation is expected to climb 50% above the Government's 2% target later this year and reducing interest rates would only fuel that inflation increase.

There are various reasons why inflation is spiking and although the Government claims that the UK economy is in good shape, the population who are experiencing higher costs for fuel bills, food bills, motoring costs, council tax increases and higher holiday prices due to currency moves are unlikely to agree.

Other factors in increasing inflation figures are the higher repayment charges being paid by people remortgaging, as they have to settle for more expensive home loans as their existing borrowing arrangements come up for renewal.

The refusal of mortgage and loan providers to reduce the rates they charge on loans is hopefully a short-term measure and, although many loan companies have faced difficult times over recent months, the return to cheaper loans may well come about later in the year if markets settle down and inflation levels reverse their current upward trend.

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