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Cheaper Loans are still rare

You would expect a series of interest rate cuts to bring a reduction in borrowing costs and see a return to cheaper loans. However this expectation is not materialising because there are other factors affecting our money systems at the moment and a return to low cost loans depends on a range of other improvements happening first.

Financial analysts conveniently classify the UK banking community's problem at the moment as one of lack of confidence, so generating some extra confidence should fix the problem. Unfortunately it's not as simple as that, even though commentators are welcoming the fact that the Government plans to inject some substantial sums into financial markets soon.

Confidence is a factor of subjective and objective contributions and you just can't artificially reverse a confidence trend by taking some extraordinary moves. Banks are taking all kinds of actions at the moment to work through the borrowing problems that affect us all. No bank wants to make risky loans, either to a customer or another bank. Many have lost substantial amounts and suffered big profit reductions and no-one wants to be the first to offer an olive branch to their comeptitors and end up with egg on their face. So it's been left to our Government to make the first move.

But this first getsture may be a one and only offer and if the banks don't use it to help open up markets, and just selfishing soak up the cash to feather their own nests, then they could all be in for bigger problems in the future. If lending markets are not returned to normality soon by making cheaper loans available to more customers, we may end up in a downward spiral that will be even harder to halt that it could be at the moment.

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