| UK
Interest Rate: 5.5%
UK
Interest Rates Forecast: Further cut possible early in
2008
Interbank
Lending Rate Failed To React To Rate Cut
One
of the effects of the credit crunch has been that the
London Interbank Offered Rate (known as the LIBOR) has
risen steadily. The LIBOR is the interest rate
than UK banks pay when they lend money to each other for
three months.
This
is important because this lending between banks is one
of the main ways fixed-rate mortgages are funded.
When
the Bank of England cut interest rates last week, they
hoped that the LIBOR rate would also fall - making it
easier for banks to borrow money from each other again.
That
hasn't happened - and now the Bank of England is resorting
to more desperate measure, making loans available to banks
that need them, without charging the usual penalty rates
of interest.
Time
will tell if this is effective - but in the meantime borrowers
will find that the interest rates at
which they can remortgage remain fairly high.
Inflationary
Pressures?
A
new report from the Office of National Statistics - the
government's number cruncher - has shown that factory
gate inflation is at its highest for 16 years.
To
you and I, that means the price of UK-made goods is rising
faster than it has done for some time. Average output
(finished goods) prices rose by 0.5% in November, bringing
the annual increase to 4.5%.
The
increases are not simply the result of greedy manufacturers,
though - raw material prices are still rising - in particular
food and crude oil. Raw materials rose by a staggering
1.7% in November - dwarfing the increase in output prices.
All
this means that the Bank of England may still be very
wary about cutting interest rates again
soon - as combating rising inflation is one of their highest
priorities.
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