Base Rate remains 0.5%

Base rate remains 0.5% – for the third month.

Is Quantative Easing ( QR) having any effect? I am not sure any knows yet; the only conclusion is that without it -one assumes liquidity would be even worse but also its a sign of how bad things are in that £125bn can disappear without much trace.

Interestingly economists are suggesting rates will need to be kept low for 2009 and most of 2010; whereas the banks are telling us rates will go up and assessing stress test on c 7-8%;  this is crazy; sure lenders need to know IF rates increase that clients can afford the loan- but what are the chances of rates increasing /to what level and for how long?  The banks never said base rate is 5% and our margin is 2% = 7%  but.. as the average rate over 10 years is 5% we’ll test the stress test at 5%; in other words when rates are high they sensitise them and when rates are low they pretend rates are much higher; yet if the historic stress tests had worked surely we wouldnt be in a mess now.

So we remain in never land- those with debt on variable rates have benefited ( although banks have often increased margins significantly) and those who want to borrow new money bacause rates are attractive cannot because of restrictive stress tests.  Meanwhile valuers sit by the phone waiting for business/lenders twiddle their thumbs and look at their loan books like hawks for potential defaulters and brokers go out of business or persuade people to change energy companies in a bid to remain solvent.

How low can we go? Not sure the government can do much now – its not the actual interest rate thats the problem its availability. And its not getting noticably better.