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Why interest rates aren't falling

Robert Peston | 12:15 UK time, Sunday, 2 November 2008

Have you thought about taking your money out of the bank and stuffing it into socks under the mattress?

A few of you may even have hoarded a few extra notes, given the anecdotal evidence that demand for the fifty-pound denomination has been rising.

If it has crossed your mind to do just that, it's because you think there's been an increase in the risk of your bank running into the kind of trouble that meant you couldn't get your mits on your precious savings.

For what it's worth, I think it would be silly and irrational to empty your account.

But that's not really the point.

We all feel in an animalistic way that in an economic downturn, in a recession, the risk of lending - even to the bank - increases.

That's why banks are having to offer us higher interest rates to persuade us to put our money on deposit with them.

And really that's all you need to know to understand why the interest rates that households and businesses pay for loans have not come down as they normally do in line with the Bank of England's reductions in its policy rate, in what it calls its Bank Rate.

As it happens, the banking system is in better shape than it was only three or four weeks ago, when there was a genuine danger that our banks were going to stop lending anything to anyone at any interest rate.

But whoever you are, if you have money to lend, you want to be better rewarded for providing the loan - because you think (correctly) that the risks of lending have risen.

That's true if you are an individual depositing money in the bank (which is simply lending to the bank), if you are a bank lending to a small business or to someone wanting to buy a house, of if you are a money manager with billions to lend to other financial institutions.

To use the jargon, they (we) are all demanding a significantly increased "risk premium" for lending.

Now here's the bad news.

None of us can claim to know with total certainty how severe the coming economic downturn will be. Most of us are pretty sure we're in a recession, but we don't whether it will be short and sharp, or short and shallow, or long and shallow, or long and deep.

To put it another way, we can't be certain how many creditors - whether corporate or personal - will be unable to repay their debts.

Which means that this risk premium, the little extra we charge to compensate us for the possibility that we might not get all our money back, well that's floating around a bit at the moment.

We're feeling our way to an understanding of the appropriate margin over the Bank of England's policy rate that we should demand when lending.

What that means is that, right now, when the Bank of England cuts rates, it has the effect of boosting the profits of lenders - the banks and other financial institutions - rather than leading to sharp reductions in interest payments by borrowers.

If you are having difficulty keeping up the payments on a mortgage or a small-business loan, you'll think that's a scandal.

But it isn't a wholly terrible thing.

Even after raising all those billions in new capital from taxpayers, our banks need to strengthen their balance sheets further against rising losses on the tens of billions of pounds of imprudent loans they made over the past few years.

And one way to strengthen their balance sheets, to increase their capital resources, is to generate incremental profits.

Bust banks serve nobody.

That said, it would be very bad news for our economy if the Bank of England were to cut interest rates this week by the significant amount that most forecasters expect - somewhere in the range of 1/2 per cent to 1 1/2 per cent - and for almost none of that to have an impact on both the price and on the availability of credit in the real economy.

A contraction in the availability of credit is the main source of our current economic woes.

Even if mortgage rates don't fall much, even if the cost of loans to businesses doesn't drop signficantly, we may be in deep doo-doo if there isn't an increase in the supply of credit.


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  • Comment number 1.

    Worrying but true. The Banks are in a position to dictate terms to the rest of us and they are doing just that. In an apparently unfettered way.

    They are however bound by the regulatory principle of treating customers fairly. Unfortunately for customers the FSA are in charge of enforcing this principle and as they are afraid of the banks they will just continue bullying the smaller fry in the financial services community.

    As the treasury are charging premium interest rates on their lending to the banks, that cost is passed directly to the banks' borrowers and is in effect a tax on borrowing. If the Government wanted to help revitalize business they might reconsider the return rates they required on their bail out loans

  • Comment number 2.

    Price discovery is a beautiful thing, Robert.

    Let us all discover what the risks of lending are and what interest rates cover them.

    Depositors will shop around and choose higher interest accounts, banks will shop around for borrowers with good credit and raise interest rates on loans and cut lines to businesses that have no future in a recession. Bad debts will default, good debts will be repaid and eventually we will find an equilibrium and resume growing again.

    Governments have no business bribing the electorate by artificial meddling in risk premiums. Forcing rates lower or forcing lending as has been discussed does not change the underlying risk.

  • Comment number 3.

    Hello! there anybody there?

    ....I would like a new loan please!

  • Comment number 4.

    typically hysterical nonsense

  • Comment number 5.

    Though there is a clamor to cut interest rates, not least by the Government and thus a strong likelihood that the Bank of England will capitulate, I believe that this will just make matters worse. What is more, nobody seems to ask why, in spite of previous attempts to do just that, this has, so far had absolutely no impact. In fact, in Japan, this is what they tried when their economy collapsed and it made no positive difference whatsoever. 2 decades later it has still not recovered.

    Indeed, any attempt to cut interest rates so aggressively will further undermine the pound, probably leading to a run on the currency, and a rise in inflation.

    The reality is that the mess we are in is a result of policies pursued, particularly, but not exclusively, over the last decade and as such there is no way of stopping a deep and long recession.

    What is more, the Bank of England appears to be losing ts grip. Its remit was, rightly or wrongly, purely and simply to tackle inflation, and not to concern itself with the wider aspects of the economy. If it had been as perhaps it should have, we would not be in this situation. As it is, we are, and to change tack now will just make a bad situation worse - i.e. fail to stop the impending recession and effectively create inflation.

    By the way, Brown disingenuously argues that the situation is nowhere near as bad as the 1990s because interests are so low. This is rubbish.

    The issue is NOT the level of interest rates, but the gearing effect, i.e. a £100k repayment mortgage on 12% interest rate is £1062 pm, whilst a £300k mortgage at just 4% is £1600pm!

    Thus the reason that this crisis is much more serious than before, in spite of the fact that our whole banking system is on the verge of collapse, is because of the vast amount of debt and the leverage effect on repayment.

  • Comment number 6.

    My understanding is that banks make a profit from lending money...if they don't want to do this where are the profits coming from?

    Maybe it's time for the government to force the pace...perhaps by 'persuading' NR to offer much more competitive loans...presumably the other banks have to respond to the potential loss of business as customers switch banks?

  • Comment number 7.

    All these small businesses complaining...what's happened to all the bumper profits they've made over the past few years - where have they gone?

    Shouldn't these businesses saved for a rainy day, shouldn't they have a pot for the excess...just like the gov't and the banks?

    A depression is on the cards, a long and deep depression.

  • Comment number 8.



  • Comment number 9.

    there is a lot of talk about lowering interest rates to boost the economy...if the lower rates are not passed on then i fail to see how the economy is helped.
    What really needs to happen is for rates to rise to a level where savers get a real return after inflation. As there are more savers than borrowers the extra income earned will be spent so boosting the economy, giving the banks the liquidity they need and will also serve to stop house prices rising to another bubble a few years down the road.

  • Comment number 10.

    your general thrust may be correct, but another way to improve profitability might be to shed the thousands of unnecessary mortgage salesmen and other staff. Say a 33% cut in staff at ALL banks. Reducing salaries, perks, status company cars, air travel and bonuses and wouldn't go amiss too. Its a bit rich for the banks to be bailed out by the taxpayer and bank staff / executives suffering little to no pain while their customer small businesses and mortgagees are suffering short-time working, redundancies etc.

    On another front though, precisely where else are private individuals going to put the money they currently have saved in banks and building societies which justifies (you say) the higher rates of interest being offered? Housing would appear to be a no-no, gilts are not something many of the populace are aware of, the stock market is errr.... volatile, pensions are in trouble, unit trusts stock market related.

  • Comment number 11.

    No Robert, low interest rates have been the problem. The solution is for those who have borrowed too much to pay off their debts and tighten their belts. That is the only way out of this. Encouraging more lending at this point will make the problem worse.

  • Comment number 12.

    Surely the government will expect RBS, HBOS and Lloyds TSB banks to pass on future interest rate cuts especially after pumping billions of pounds in new capital into these banks?
    Yes, the high LIBOR rate may stop other banks and building socities to fully pass on base rate reductions but not these three banks?

  • Comment number 13.

    The banks need to make more money out of fewer loans because they want to keep paying the same wage bill and pay off the preference shares. The govt should forget the pref shares but force the banks to get much more efficient i.e. merge, cut staff and cut pay for those that are left. Otherwise the real economy will suffer to save the bankers - industry is laying people off and cutting pay but the govt backed bankers are OK.

  • Comment number 14.

    You have put your finger on a complex dilemma.

    If base rate is cut then retail savers will find their interest cut to levels below the rate of inflation. This will be a disincentive to save and so at best there will be a flight to higher interest accounts. At worse people won't be motivated to save.

    However, if, by cutting base rate, the flow of credit in the economy is eased then that will be a good response to the developing recession. I think a cut in base rate at this stage will have no effect on the supply of credit in the economy at all. The banks are still repairing their balance sheets and so are not focussed on the wider picture.

    In my view the recent run on sterling has been prompted by a real perception on the money markets that UK interest rates will be cut in some way. So we have already sustained some damage from interest rate cuts we have not even had yet.

    The simple truth is that money is in short supply. This means that interest rates need to rise. Cutting base rate will be an attempt to buck the market. It will end in tears.

    There is going to be a nasty bust in the economy anyway so it might be better for the bank to keep their powder dry so they can employ the interest rate cut when it will have a direct, beneficial effect.

    Either way it seems to be a choice between being put in prison or receiving a gaol sentence. It will amount to the same thing regardless; namely, an even more damaged economy.

  • Comment number 15.

    Message 3

    I have received two separate unsolicited invitations in the last week to open credit card accounts. These were from Barclays Visa and American Express.

    I forwarded the applications to my erstwhile friend Mr.W.P.Bin.

    There is money about.

  • Comment number 16.

    I certainly would not consider leaving my savings in any bank which is offering cheap loans to anyone. First the government blames the banks for irresponsible lending, to hide their own incompetence; now they want the banks to continue to lend irresponsibly. Why should any bank risk lending money to businesses that are obviously inefficient in the first place? It would , in the present economic climate be financial suicide to risk depositers money in overstretched mortgage holders and poor risk businesses. If the government is so keen to see money thrown down the drain as they have done over the past ten years, thats their problem, but leave the rest of us out of their stupid schemes. Savings pay dividends, debt does not unless the interest covers the risk.

  • Comment number 17.

    Mr Preston,
    You don't seem to appreciate that, thanks to the governments policies, it is going to be a lot more expensive for banks to operate in the future.

    Banks are being expected to raise massive amounts of capital over the comming year, raising their Tier 1 capital ratio from 6% to 9%, a massive increase in capital, making our banks fat and bloated.

    Of course, naturally, shareholders or indeed the government are not charities, and in exchange for their wonga, they expect a good return on their extra capital investment hence, the only acceptable outcome is that banks must make much greater profits in the future.

  • Comment number 18.

    A short shallow recession? You must be joking Mr. Peston. The only model we have for the current crisis is the great depression itself. It is an object lesson in what has happened and why. The only difference is that during the depression, the assets purchased on credit in a bubble market and used as collateral were stock certificates, now it's houses for which there are no markets either. But not only has the credit used to buy them spread more efficiently around the world, shells of other securites including Credit Default Swaps based on them, depending on them being paid for have been invented. The total of these swaps is more than the combined GDP of the entire world for one year. As the mortgages continue to go into default, this financial house of cards will collapse all around. Lehman Brothers was a sure sign. That is why AIG was bailed out. The response was worldwide and instantaneous.

    Interest rates are not going down because in the supply demand curve for money, the supply is shrinking fast while demand is not shrinking nearly as fast. As much money as the BOE, the EUCB and the US Treasury have printed, it doesn't compare to how much has been destroyed in the form of market value of assets in the crisis. What's more, for Europe and the UK, money is flying off to dollars and yen away from pounds and Euros. This reduces the amount of money available to Europe even further.

    There are other factors too. European banks are even more heavily leveraged than American banks are, so the impact of the downturn will be felt to a greater degree. And then there is the politics. In making American economic policy, don't think that there won't be the effect of an anti-European backlash to the anti Americanism of the last 6 or 7 years in Europe. Little consideration will be given to the impact it will have on other nations. There is no reason to expect that hardships of the downturn will be felt uniformly around the world. During the winter of recession and the ice age of depression, the weakest die off. Europe may wake up to a new reality it won't like. The cold wind of the recession of 2000 Europe said it would not feel was a warning to it that it completely ignored. Also, the UK took it for granted that it alone in Europe survived it largely unscathed without understanding why.

    In all likelihood, the next president of the United States will be a protectionist. If anyone bothered to listen to what he said in Berlin, assuming they even understood English, once you got past the amicable tone of his words, the substance was that Europe had better start pulling its fair share of the weight in NATO or the US may simply pull out. That would not bother me as an American taxpayer one bit. I wonder what hardships the UK and other large economies like France and Germany will have to suffer before its taxpayers revolt against paying for building roads and bridges in Hungary. A lot is going to change one way or another very soon. It's long overdue.

  • Comment number 19.

    This may seem simple but my response is to sugest the reduction of wasteful investment in packaging.

    Think about it, a package made pretty is more attractive but at what cost?

    Packaging enables sales but it does cost.

    You can say that yes it made us more profit over our competitors but it is essentially just waste product.

    So much wastage on a global scale indeed.

    Common sense says that you can not throw away manufactured items but we do.

    A carton of milk with a name is a means to singular profit but is, on the global scale, Waste.

    We all need to consider the 'economical' use of resorces in our desire for profit.

  • Comment number 20.

    If I may just alert you to a pending problem because of the lack of lending and high interest rates;

    Supermarkets to high street shops are putting in contingency plans, buying up as many 'home made' products for the rest of winter/spring period

    Shipping has virtually stopped, air freight has been hiked up in price to make it uneconomical in the extreme, to seriously increase prices as best

    It would be prudent to bring in supplies of 'imported necessities' as many nations begin to stockpile their own assets from cash to food.

    We are not in the same league as recession any more as this crisis is beginning to take effect.

    The Banks are holding the world to ransom and the effects will be long lasting.

    The PM has been pleading with the oil rich nations for CASH, nothing else - we're desperate.

    Ask yourselves:

    How many companies out there are cash rich enough to last months without credit lines?

    How many products on the shelves come from Britain?

    The answer will provide you with an insight of what is in store for us all.

  • Comment number 21.

    The banks that were badly run appear to have been saved mainly by public money and are simply reverting to the status quo.

    We are going to see 4 to 5 million unemployed in the Uk in the next two years, probably 500,000 or more houses re possessed and thousands of businesses going under.

    Banks working for society could prevent much of this pain and the only way to ensure that is to nationalise the whole lot from top to bottom until hostilities are ended so to speak.

  • Comment number 22.

    "if you are an individual depositing money in the bank (which is simply lending to the bank)"> Not completely similar though. Actually the individual is lending the money that he/she has, while the banking system is CREATING money by lending money. That is all the difference! A lot of people think that the banks are lending the money that they have, but this is just not true. They are allowed to "create" money as long as they keep a certain ratio with their own capital resources.

  • Comment number 23.

    Higher or lower interest rates will make no difference to the state of the economy. The only thing that might help would be the Obama plan.
    i.e. lower taxes for business that employs local labour and penal tax for business that uses
    labour overseas in the production or service
    sectors. Bt the way many thanks for the link you gave to' Money as Debt.' Brilliant eye-opener for
    us tyros. Knowledge of fractional reserve banking
    etc spreading like wildfire among the formerly uninitiated.

  • Comment number 24.

    #18. MarcusAureliusII

    Is it unrealistic to plan for the worst but hope for the best?

    Whilst I tend towards feeling that this is just the start of a major slump during which a major correction in house prices takes place there is always the Japanese example of a 20 year go slow where assets stagnate and so does the economy (and I think this may be the best to be hoped for!)

    I do not share your degree of pessimism -

    "A lot is going to change one way or another very soon. It's long overdue"

    is I think overdoing things given the information available at present. I also don't know that admitting it is entirely a good idea for any nation's economy.

    The Western World has muddled through for decades and you model of what may happen suggests that all of the previous systems are going to fail. I also believe that you are shockingly complacent about the outlook for the USA.

    Your decline from being a super-power in the World's economy will be more traumatic than the older nations of Europe as we have long ago admitted that our empires are a thing of the past yet the USA will suffer a seismic shock when it too discovers that, like Rome, its empire is a thing of the history books.

    Let me pick you up another point that you made:

    "anti Americanism of the last 6 or 7 years in Europe".

    No, Europe has always had an ambivalent attitude to the USA. This is nothing new, as it is also nothing new for the USA to have the same attitude to the Europe. I will not go on at length with examples.

    I also think you will find that European Nations will be far more prepared to "build roads and bridges in Hungary" that doing so in the USA - the crucible of this economic meltdown, both philosophically (c.f Milton Friedman) and economically.

    Wall Street has bankrupted you nation just as the City of London has bankrupted our nation, just as their financial institutions have done in most European countries.

    The World is in receivership. Assets need to be sold for what they will fetch in a fire sale by a distressed seller. When that has happened, capitalism will resume, chastened for a decade or so, but it will resume.

  • Comment number 25.

    Mr Preston I find your bogs interesting but I disagree with your foolish comments.

    I have zero confidence in the system now and I am increasingly wondering if i would be better off emptying my life savings as you put it and moving it out of the uk banking system by sending it to off shore banks instead like Spain or Ireland.

    You may think its foolish but for the last 14 years I have saved my modest nest egg by never taking a loan out or getting into any dept, and I am getting to the point where I am not willing to risk it in a system that’s proven to be fundamentally unsafe.

    From my point of view Gordon Brown fudged the system, he created the FSA on the cheap without and real thought as to expertise or the incentives to hire the expertise, and then relaxed the rules on the city. (chimp with a gun scenario)

    In return the greedy little so and so’s ran rampant uncontrolled risking what I have worked hard for with nobody with any real expertise looking over their shoulders with browns blessings.

    Gordon likes to blame the world for what’s happened here, but as the Spanish banking model shows it’s the guy in charge of the system in each country effected that must bare the brunt of the blame for its inability to cope.

    His decisions could have made the difference between near collapse of the banking system or a simple loss of profits; unfortunately his decisions lead us to the near collapse scenario.

    Now what ? all I have seen from brown is sticking plasters over the system the bail out the new rules, all of which we will have to pay back eventually in taxes. You may want to trust browns ability to fix it. I do not.

    As layman and no real experience in financial matters that’s the way I see it.

    Who is the most foolish, the fool (brown) or the fools that follow him (some aspects of the uk population)

  • Comment number 26.

    No 21. You're dead right George -
    nationalise the lot until the crisis is over -
    maybe in the 22nd century. It won't happen in
    the 21st as every move by Govt. and Finance,
    both national and international, has been aimed at preserving the status quo and sending us all back to square one so that history can repeat itself, again and again and again.

  • Comment number 27.

    REF 22
    Dont waste you time, the sheople dont care or cant understand, and our dear robert knows that if he publicly explained the fractional reserve gov/bank scam he would be silenced and his caereer would finish.

    just sit back relax and enjoy the game!

  • Comment number 28.

    Re: "For what it's worth, I think it would be silly and irrational to empty your account."

    I don't understand why you think it's irrational. Maybe emptying your account is going too far, but forgoing 5% a year in order to be sure of not losing your money completely doesn't seem to me to be completely irrational if you aren't sure the chances of a 1930s type scenario are less than 1 in 20.

    Personally I haven't taken any cash out of my account, but I don't think the idea is completely irrational having read the wikipedia article on the great depression. From the sound of it, having money cash in hand in a deflationary environment with hundreds of banks going to the wall sounded like the best position to take. I doubt history will repeat itself exactly though, even if the worse happens, they'll probably be a different twist to it (for example an inflationary environment).

    If you're right and I'm wrong I'd be interested to hear an explanation why.

  • Comment number 29.

    Robert you say:

    Bust banks serve nobody.

    You are wrong. Banks going bust (just like any other business) weeds out the weak and incompetent.

    #7 jackblood.

    Small business have not been making mega profits to have money to be put away for a rainy day -- any 'windfall' that might have been has been taxed right back into gordons pocket.

    Brown stoked up massive borrowing, then pocketed the lot.

  • Comment number 30.


    Yes, money out of thin air! The biggest confidence trick in history...well, that and religion.

    I think the Pound will reach parity with the Euro within a year and the Dollar will collapse altogether with Canada holding an interim currency whilst the Amero is being put together.

  • Comment number 31.

    Once the interest rates fall below inflation, the logical choice for savers is to put it into index linked national savings instead. Meaning that the most secure savings are also the best value - which is at odds with the normal risk-reward trade-off. It already is a no-brainer for higher rate rate taxpayers.

    So I don't think the banks can reduce their interest rates at this point. Else they would risk a further flight of £30K per high saving household from banks to national savings. And though that is only a few percent of savers, it is a large percentage of deposits.

    As for the depth of the recession, you wont get folks to take it seriously until unemployment sails past 3 million with no sign of stopping or house prices fall below rebuilding costs.

  • Comment number 32.

    Did anyone else pick up on the interview with a lady from the IMF on the Today programme at the end of last week who identified both the USA and UK as the culprits who caused the world economic slowdown (I cannot find it it on the Today website)?
    I was surprised that it wasn't picked up on by Ed Sturton and the Today editors but then again the BBC must follow the party line and repeat the Labour Government's story that it is non of Gordon Brown's fault.

  • Comment number 33.

    There's another possible reason for rates on borrowing not falling, and that's the impact of deposit protection and other guarantees aimed at maintaining liquidity.

    I met the CEO of a small Building Society a couple of weeks ago, and he told me the impact the Bradford and Bingley rescue had had on them. Basically, the government loaned the Deposit Protection Scheme GBP 14 billion to pay BB's depositors when that business was transferred to Abbey. Naturally, the government wants paying for that. The result is that levies for the Deposit Protection Scheme, paid by all institutions that are licensed to take deposits) will rise sharply next year. For the Building Society noted here, the impact will be that the levy will equal about 20% of their pre-tax profit. At the same time they, like all other financial services entities, are being required to increase their capital base. That requires them to try and increase margins to increase profits, and then not distribute as much of that profit as dividends etc.

    The fact is that if people want cast-iron guarantees that their deposits are safe, then there is a cost associated with that. The cost is higher interest margins in order to pay for the insurance. In other words, in the current climate, higher interest rates on borrowings. Though as and when the economy turns, we'll see rates on borrowings drop, but then rates on savings will drop further so as to maintain margins. Theoretically, it's borrowers who should pay for this protection, as they're the beneficiaries.

    At present, however, the combination of competitive pressures to attract more sticky retail deposits, and no real desire by the banks to increase lending in a recession, means that rates on borrowings will stay high, or at least margins over Bank Rate will. The problem is not insurmountable. BoE just has to lower rates more than it would have done without this issue in order to get actual lending rates to the level they want to see. Then they need to be alert to reductions in general borrowing rates relative to Bank Rate and adjust Bank Rate upwards to compensate if they think borrowing rates are lower than they want (ie increase Bank Rate as a result of changes in lending by banks, not just forecast changes in CPI).

  • Comment number 34.

    Message 20 PetersKitchen

    `Shipping has virtually stopped, air freight has been hiked up in price to make it uneconomical in the extreme, to seriously increase prices as best'

    I appreciate that there are issues at the Baltic Exchange due to bulk cargoes but there is no evidence at present to say that all shipping has stopped. The vessels from the Far East are still relatively packed, the North Atlantic is chock full as the US flogs off its inventory and exports out of the UK are as thin as they have always been for the last five years since Blair-Brown closed down our manufacturing and employed the redundant as rubbish bin inspectors.

    As for airfreight it always was expensive and remains so.

    However some freight rates have fallen significantly but there are arguments as to the reason.

    I appreciate that times are hard and are going to get a lot harder but we need to retain our sense of proportion.

    I do agree that Mr Brown going around the world wearing out the knees of his trousers in the pretense of looking experienced and connected is quite trying, but it is he who needs to get elected and not the rest of us. Perhaps his endeavours would be better rewarded if he kowtowed to the UK taxpayer first. Until such an unlikely event comes to pass we should ignore his strictures and pay attention to the far more competent Darling.

  • Comment number 35.


    You got that right. There again there are some economists and business correspondents who haven't a clue how fractional banking works!

  • Comment number 36.


    are you so young in memory to think that brown/blair started this?

    Fine words do not make a truth.

  • Comment number 37.

    With bad debts due to rise the majority of bank loan books will become unprofitable at the low rates previously available. In the "good old days" of easy money customers could pick and choose as lenders were falling over themselves to lend at very fine rates and if their bank didn't have the best rates they went somewhere else. Now that money is much tighter the boot is on the other foot and it is the banks rather then the customer who dictate the rate. The correction was long overdue. Get used to it people, higher rates are here to stay or at least until this current generation of bankers retire and a new lot come along who will repeat the same mistakes. Free banking will be the next thing to go for all but basic accounts and banks will go back to offering their best rates to those that give them all their business, not the rate tarts. Liquidity will be at a premium and bankers will only give it up at the rice price and to premium customers. How ironic that the Government, via it's attack dog the OFT, sought to restrict bank profits from charges to gain a few votes and now faces the real possibility that tax payers will have to bear the cost of paying back the charges to those that were financially incontinent should the appeal in the High Court be lost as most of the banks now have little cash flow and are part owned by the State. You couldn't make this stuff up.
    When Base Rate comes down next week, the only mortgage rates that will be coming down will be tracker and CAT standard ones for as long as the banks don't trust each other.
    The current mess we are in vests with Brown, the Regulators, a Stock Market that refuses to take a long term view, greedy investors, lazy CEO's that looked no further then their 3 year contracts/share option deals and finally, the excuse that passes for professionalism and experience in the City these days. Sheep-like herd instinct replaced good old fashioned hard work. How many "analysts" bothered to check cash flow and balance sheets or actually understood the financial instruments they were dealing in I wonder?
    Never mind, I've retired, sold most of my shares last year and paid off my mortgage years ago.
    Finally, will someone please explain the real world to the idiots that keep wanting all the banks to fail. What's the bet these are mainly those who are financially incontinent and were always being told no or pay us back what you owe?

  • Comment number 38.

    27 southerngent1972

    Most people get the fractional reserve stuff when explained -- and are ususally shocked when it they discover that 'fractional reserve' doesn't mean some of the deposited money is lent and some kept in reserve, but that the deposited money is only a fraction of what is lent...

    The man in the street really is shocked to learn that banks lend more than they have on deposit... They wouldn't do anything so stupid (at least not and expect to get away with it).

  • Comment number 39.

    An excellent economic commentary by Robert Peston.

    He puts his finger precisely on the economic conundrum the UK economy faces.

    But how to resolve it?

    Interest rates will fall, and probably as soon as this week by at least a miserly co-ordinated 1/2 %. But these falls are not being reflected in falling interests rates for borrowers, home owners and businesses, just at the time they are needed most.

    This will drive many needlessly to the wall and add to economic and social woes.

    Banks are the ultimate contrarians and short term operators, they lend too much in the good times and too little in the bad. Leaving governments (that means the taxpayer) to take up the slack.

    Eventually a UK government will have to create an INDUSTRIAL BANK OF RECONSTRUCTION AND DEVELOPMENT, which takes the long view in the national interest, backed by government bonds, at low, guaranteed long term rates of interest to reconstruct the UK economy and create a UK Wirtschaftswunder (economic miracle).

    The days of hubris and rising asset prices to finance consumer borrowing, consumption and a service based economy are over.

    The UK is in need of a new economic model.

  • Comment number 40.

    Government can use Northern Rock and B&B to cut rates as it directly control them. If banks are run by Tesco, Asda and the like we will not be in this mess.

    Interest rates are falling for people with tracker mortgages.

  • Comment number 41.

    Loans to credit worthy customers at interest rates in line with a lower bank rate will eventually become available.

    The government has to ensure that this happens soon, to limit the downturn. It can do so by telling Northern Rock and Bradford and Bingley to offer such loans, even if its agreements with other banks do not give it sufficient clout to insist that they do likewise.

    UK interest rates have been too high relative to those of its international competitors for several decades, causing the pound to be overvalued and creating an unfavourable financial climate for manufacturing industry.

    Until recently it was not possible to do anything about this, because lower rates would have further inflated the house price bubble. Now that the bubble has burst, it is at last possible to deal with this problem.

  • Comment number 42.


    to quote your own words: "A contraction in the availability of credit is the main source of our current economic woes."

    I most strongly disagree with your assessment. The main source of our current woes is down to the vast amounts of lending to people who couldn't pay back the money and banks who overstretched their reserves by a massive amount. The lack of credit availability is the RESULT of those two factors. It was the overly generous amount of credit that got us into this pickle.

    You say that no one can say how severe the downturn will be. Well, I'm going to nail my colours well and truly to the mast. It will be a deep recession (depression) and it will last for a couple of years at least, followed by another two to three years of zero growth growth. The upturn, when it comes, and it will, is going to be a very cautious affair, about four to five years from now. In the short term, unemployment will start to kick-in by the Q1 2009, quickly rising to 2 million, it will continue to rise to a peak of about 3.5 to 4.5 million by mid 2010. The retail industry will be a blood bath in Q1 and Q2 of 2009. Manufacturing will be in a state of collapse and its worth noting that the travel industry will see some surprising departures from the business world.

  • Comment number 43.

    Well I feel like the odd one out now. I have indeed emptied my account because I reason that we only have the big boys left, it is less likely that one falls over but if it did I think they all go. Not worth the risk for the couple of percent they pay in interest. I know the FSA is supposed to gaurentee the first bit but I also know the government have borrowed far more than they can afford and it would probably take months/years anyway.

    So, I have moved my money into yen. Now this is the bit I am not sure about. I observed that pound and euro weakend against the dollar and dollar weakened against the yen but why the yen is strong is a mystery to me, I just know that it is. Anyone able to give a clue?

  • Comment number 44.


    Please look at the other side of the coin!!!

    Tunnel vision is one halll of a morivator (@ leat it is for you Victor)


  • Comment number 45.


    Well said that man!!!!

  • Comment number 46.


    So interest rates should go ...which way??

  • Comment number 47.

    Last week we emptied all of our accounts we had except for a very small sum.
    Our mortgage is gone and we feel lucky but still very aware that this may not be enough.
    If only we could be paid in cash, then I wouldn't use a bank at all.

  • Comment number 48.

    Message 36 stalisman

    I am sorry but your comment is too abstruse for me to understand.

    Perhaps you could enlarge upon it so we could all enjoy its merits?

  • Comment number 49.

    The question of leaving money with somebody to their advantage is quite simple. One does not do so unless at the very least the capital is safe. That applies whether corporate lender or individual, but is particularly evident with the individual who cannot easily spread liability. The legal detail of recovering missing money is unfortunately considerably different to the jolly adverts or verbal reasurances from ill informed high street operators.

    The situation for the individual is different to the general cloud of economic advantage of credit being available. In destroying the trust of the public this government, and the banks, have done nobody any favour. At the end of the day all business is based on trust. If there is no trust then there is no business. That is the effect you are seeing at the moment.

    Much ado has been made by the government of using other peoples money to prop up the system essentially to the governments advantage, however, and somewhat unsurprisingly, individuals are searching to see just what benefit the subsequent debt or liability they face via the taxation system is due to give them.

    Setting aside the inevitable issue of what action is needed to prop the pound, it is noticeable the difference between the UK strategy and that of the US where interest rates are so substantially lower. Again unsurprisingly the US is expected to rebound far more easily than the UK.

    If the UK really wishes to see itself as a smaller version of the US, which seem to be embedded in the menatilty of the government, then policies have to have commonality with the US as the problems are the same, as by and large the US model has been imported by the UK government.

    If the UK is however different to the US that is okay - but the conclusion has to be that aspirations have to be different. At the moment we appear to have a government that wants to cherry pick whatever suits, which is not a viable proposition is it.

    The choice looks pretty stark - prop the pound and the associated foreign debt or cut interest rates to easy the impact on the UK public.

    Doesnt seem a difficult choice to me. Time to look at things locally, rather than globally. Unless the missing arguement to the otherwise suddenly appears.

  • Comment number 50.

    Message 43 Uphios

    You are a brave chap!

    The rising value of the yen is, I am advised, due to the death of the yen `carry trade'.

    I stand to be corrected by others more connected to the money markets but my understanding is that the yen is no longer being used as a cheap trading currency as the US dollar is now much cheaper.

    Be careful though as this won't last forever.

  • Comment number 51.

    Earlier posters are dead right to point out that the slump in world trade is highly significant.

    Unlike some countries were are not in a position to barter for goods we need. All we can offer the suppliers is a rapidly depreciating pound.

    If money is in short supply it is logical that the cost of it (ie interest rates) should be raised. This encourages people to put money in the bank and allows the banks to lend it out again.

    Unfortunately the prudent savers are thin on the ground. Most people and businesses are in debt.

    I have been trying to tell people for ages on here that we are stuffed, but nobody wants to accept the truth.

  • Comment number 52.

    These are all reasons why there is absolutely not point in cutting bank interest rate. The economy is in such a mess that the banks need as much money from savers as they can get.

    I have mentioned both here and elsewhere that the only way to save the economy is to drastically cut taxation, on fuel and to re-instate mortgage tax relief. This will give people back some of there own money which can be used to spend and save in banks. Mortgage tax relief will help everyone with a mortgage especially those who are on the brink of re-possession, stabilise house prices, and stopping even more from going into negative equity.

    Contrast this with Gordon Brown, who is going around the middle east advocating oil price to remain at the level they are at now (what about CO2?) without him cutting petrol tax. He also said that cutting taxes would mean people would save some of extra money (required) instead of spending it all.

  • Comment number 53.

    I am surprised if people even think the current cuts in rates are meant to be passed on to borrowers in full. The purpose of cuts is to get things moving again and make it more profitable for banks to lend to good risks. The problem we are in was mainly caused by irresponsible lending spurred on by governments and bankers wanting to pay themselves obscene amounts of money that they never deserve because they just do not add value.

    Small businesses and individuals who are not good risks should expect it to be hard to borrow money by definition. We need big cuts in interest rates so that it spurs action but it will take a long time to get back to normality- not the normality of the last ten years- but the normality of sensible gearing and low personal debt that we can afford.

  • Comment number 54.

    Throughout my working life, I have had to put up at times with the misery of very high 17% + interest rates. Now coming up to retirement, it seems as though my hard earned savings are likely to get a very poor return. Why when we have been through severe recessions before in the past 30 years or so was it important to have interest rates so high then, and now again in a recession/depression is it right to put them down towards zero. I can't help feeling that a fairly high interest rate over the past few years (around 6 or7%) might have prevented some of the hyper rise in house prices that have been created the feel-good factor for Brown, Blair and accompanying entourage. It may take a while, but inevitably the utter incompetence of Brown as Chancellor will become apparent to the voting population.

  • Comment number 55.

  • Comment number 56.

    Robert Tell us SOMETHING WE DON’T KNOW.

    You go from nonsense innuendo filled ramblings to the mind numbingly obvious.
    Now we know you’re not a complete simpleton.

    So PLEASE start doing your job and give an unbiased view of where we are and where we may be going.

    A simple Fruit and Veg market trader will explain what is going on where a market has been squeezed or there is no supply and the need to make back some profit.

    That story is as old as the very first market trade in the history of mankind!

    I guess you just got bored and needed to restate the Blindingly OBVIOUS yet again and add some fear to boot!

    What about where we can expect to find SAFETY?

    Any IDEAS


    I didn’t think so!

  • Comment number 57.

    Interest rates have gone up to 18% in Iceland?


  • Comment number 58.

    43 uphios

    The general rule is if you do not understand the game do not play it. In saying that I am not trying to speak down. You may benefit, but if you do it will be accidental, but that applies to much. Good Luck

  • Comment number 59.

    You rightly call the BOE bank rate, a policy rate. That is all that it is. When times are good the public, including the corporate treasurers, and the central bank itself assume that the central bank can actually set rates, when all that it can do in fact is give an indication of official sentiment. Interest rates, when times are tough, as for any other commodity price, are set by the market. For government to complain that rates are not coming down, simply demonstrates that they do not understand the most basic economics.

    The BOE rate as it stands represents just a purposeless gift to the banks by the British taxpayer.

    Rates to the banks must go up. Tough on the mortgage payer, but these are tough, and unprecedented times. Until such time as the BOE hikes the rate sharply, bank lending will not unfreeze and trade will grind to a standstill.

    If the bank rate is cut further, one profitable business might be hiring out ship moorings!

  • Comment number 60.

    Hello Robert

    I've just watched you ( or your doppelgänger) on chanel 4 - Bremner , Bird and Fortune

    and you know what I understand much more than I did listening to the experts pontificate

    Look in at the next programme

  • Comment number 61.

    51 wykhamist

    - we are stuffed -

    Well depends if you are affected. Not everybody is, that is the problem of a recession, its effect is arbitary. Some do well. Prices drop, inflation drops, some items appear more attractive and sell well. Cash is king. Only a minority pay the big bill.

  • Comment number 62.

    Thanks for the comments re Yen. I understand the carry trade bit, though never relised it was this strong. And if I benifit it won't be an accident, it is the result of observation and I will reverse at the drop of a hat if looks wrong. No, what I can not understand in the context of Roberts article here is I remeber reading a few years ago about horrendous trouble within the Japanese banking system. From memory I believe they are carry huge debts supported by goverment loans out of taxes on their successful industry. Now I have read nothing that says the banking situation has improved, they have been very quite through all of the credit squeeze but now their industry is feeling the first pangs of pain. So my concern is do the taxes dry up and with it the support of the Japanese banks or just as bad do they suddenly reveal their toxic debt. As you can imagine either of these could move the yen faster than I can get into canadian dollars!

  • Comment number 63.

    Message 43 Uphios,

    Yen strength is temporary, get your money into Euros - the Pound will drop to parity soon...the Dollar will fall into the toilet and the bonus is; the Euro is 15% backed by gold.

  • Comment number 64.

    Robert Peston correctly describes, "Why interest rates aren't falling."

    There is a theory, or an urban myth that markets are efficient, which experience shows to be fundamentally flawed. How many booms and busts are needed to prove the point?

    Banks and markets have a fundamental flaw, which is an inability to deal with downturns, which they themselves create. The recent paroxysms in the financial markets amply demonstrate this.

    Markets, like banks are ok in the good times. The old adage is that banks lend you an umbrella when the sun is shining.

    Starting on 15th November is the so called Bretton Woods II conference in which the financial architecture of the 21st century is due to be defined, as the Bretton Woods conference of 1944 led to the reconstruction of global finance after World War II.

    The excesses of the financial markets from hedge funds, bank derivatives to excessive imprudent lending need curbing, controlling and regulating by mandate if necessary.

  • Comment number 65.

    My no wonder we’re in this mess.

    This really is SIMPELTON Central!


    Many mortgages and other loans are linked to the BOE rate.

    SO any CUT is GREAT news for those existing borrowers.

    ROBERTS CAUGHT IN HEADLIGHTS can’t you see that?

    Sure it’s no good for new lenders and those linked to LIBOR or those who are not on tracker type products.

    BUT for everyone else some big% or mortgages it is very good news.

    NOW ROBERT what are those figures? That is how many do benefit from a cut?

    Another note to SIMPLE

    We are all learning that taking anything for granted is a danger and that it is unwise to go along without a contingency plan.

    First rule of business and life is.


    Which is what almost everyone has forgotten to do.

    The worry for all of us is that most people live from month to month and have no concept of contingency.

    It is those SIMPLETONS and the SIMPLETONS who lent to them who are causing this mess.

    The worry will be INFLATION.

  • Comment number 66.

    64. chelyabinsk

    Markets are efficient - they boom when that is the efficient thing to do, they bust when that is the efficient thing to do.

    You stockpile during the booms and consume your stockpiles during the busts.

    Socialists tend to be stupid enough to think that 'boom and bust' can be abolished, that they can control/aboloish these tides.

    They whinge that 'free markets' don't control these ebbs and flows, so don't work - not having the inteligence to realise that 'free markets' don't work by controlling the tides - they work by *managing* them - store in the good years, consume in the poor ones.

    There is a bust right now, our response should be
    "so what? we have plenty put by."

    Instead the stupid socialists spent in the good years, and now blame 'the market' for busting.

    Socialism is fundamentally flawed, and blames everyone/thing else for its failings - pathetic.

  • Comment number 67.

    Sounds like you are spining aother government line Robert. Are we being prepared for the bank only giving us 0.25%. Your blog should move to as a wonderful public information tool.
    It is small businesses that need this rate cut Robert and banks need to pass it on.

  • Comment number 68.

    # 5

    Good comment about the gearing effect!

    There are many other differences between now and the 90s - $60 Trillion Dollars in CDS for a start!!

    Why are all commentators avoiding talking about the reality - the scores have been on the doors for some time.
    Economics is a very large wheel and when a downturn of this maginitude is put in motion it will take a very long flat spell for it to gather momentum to climb again!! It's path can be tracked quite easily, just refer to history - this will be a 100 year low!!

    It never fails to amaze me how blind people choose to be in times of crisis. 6 months ago Britain wasn't going to affected by this because we had a very resilient economy and public finance/debt position!! Hahaha!

    Most realistic commentators on this blog have foreseen a recession from September 07, but, politicians and government/private business spokes people are still loath to admit it!

    The gamblers keep holding on telling themselves another win is just around the corner!

    The whole world has to de-leverage!!

    Stocks will break the lows of October 10 this week or next, with even worse prior to December!

    I fear a deflationary depression is the only way out of this horrible mess!

    It's going to be horrible!

  • Comment number 69.

    I have an RBS offshiore account had it for years. I phoned the bank and asked them if my money was covered by the UK gov insurance. Flat answer NO! So I decided to remove some of my hard earned cash, that had been resting in the bank for years givng a paltry interest on which I pay 20% TAX. I phone the bank and tell them I want to collect the dosh from a mainland Natwest. I give all the detals including my personal details and even the cheque number. Being careful I checked two days beforehand with the mainland bank and they denied all knowledge of an instruction. Soon phone calls were being made tomy bank and now after being handed around I now had a very pushy female supervisor telling me that I could not have my money. The max she would allow was 5K and that was per MONTH. She constantly demanded to know why I wanted the money and even said that I could be accused of money laundering. This to a long standing customer of over twenty years. Now then I have never seen a 5K rule in all the years that I have been with the bank. I did remind this person that it was MY money and not the banks and it was for me to decide what was best for MY money. I would be interested to know just what is going on. Has this bank some financial problems? I did remark that perhaps they did not have my money after all. Shades of Iceland here. So you see it's not as easy to fill your sock as you suggest. As for the loss of interest by keeping cash, I think this episode shows only too well why people are deserting banks with their cash and who can blame them.

  • Comment number 70.

    I have felt for a long time, that interest rates were stacked too much in favour of the borrower, at the expense of the saver.

    It seemed to me that one day events would conspire to reverse this balance.

    I can see that at present there are reasons why interest rates might move to align with the US rather than Iceland. But, I can't help feeling that, in the long term, the banks are now more depenedent upon savers money and will have to pay higher rates. Otherwise, there is surely a risk that we find ourselves in the same predicament again.

  • Comment number 71.


    That's a scandelous story, I'd be of the mind to drop everything and go over there and demand every penny back and not move until I did - who the hell do these people think they are!!

  • Comment number 72.


    That's a scandelous story, I'd be of the mind to drop everything and go over there and demand every penny back and not move until I did - who the hell do these people think they are!!

  • Comment number 73.

    64 the-real-truth

    Robert Peston is an excellent BBC financial journalist he accurately describes how markets make good servants but bad masters!

    I do not believe that he grinds any political axe. He tells it like it is, warts and all.

    Your rant against socialism (ie "socialists tend to be stupid enough", "they whinge", "stupid socialists", socialism is fundamentally flawed" etc) in your post is well wide of the mark.

    The handle chelyabinsk is a reference to toxic waste (google it), as in bank derivatives, not some form of political affiliation.

  • Comment number 74.

    Wrong. Every several hundred years, the current crop of bankers start thinking the sun shines out of their posteriors and they can do no wrong. Every couple of hundred years they are replaced by someone more fitted to do the job. Where are the Basings and Throckmortons now, the Temple, the Lombards? Mere streetnames.
    The current set seem to think the bailouts that saved them were simply to line their pockets. Given the track record of certain members of HMG, they may even believe they can get away with it, if it were not for the wonderful example of Woss and Bland - the people eventually speak.
    One reason for them to have thought this is that for century upon century - in fact, since the ransom of Richard I exceeded the net assets of the country in 1193 - the banks held the whip hand over government, HMG owed them money and danced to their bidding. Examine the Civil War for a casebook example of government (Charles I) ignoring this fact.
    However, two years ago, that changed, the last penny of the National Debt was repaid, so plan B was called for, force the UK back into debt to bail out the said banks. This must be the only time in history where the creditor becomes the debtor by sleight-of-market!
    As I said some weeks ago, it's all very well bailing out the UK banks, but the rest of the world's banks are here too, like vultures waiting to pick over the corpse. and they too are failing to perform their role - if one bank won't lend to you, Mr Treasurer, try another, but if none will lend to AA companies, then that's collusion on a massive scale. The Chancellor may have some moral claim over HSBC, but none at all over Bank of America or Paribas.
    The answer, of course, is for HMG to suggets they will freeze all bank credit pending nationalisation, not merely of the retail sector as I first suggested, but of the entire industry, as they have obviously resigned from the job.
    The first step is to summon every single Ambassador to the Durbah Court and inform them that their banking representatives were subverting the Government of the UK.
    The next step is to reinstate the HMG Trade Guarantee régime, and to require all exporters to use it.
    The third step, if those fail, is to summon the World Bank and force it to act as trade creditor.
    And the fourth step, for major pannationals to take on the role themselves. A deep recession caused by trade barriers cannot be in the interests of BP and its brethren, it will be in their interests to provide the clearing if the banks have failed.
    And if that fails, there's still time to plough the lawn before the winter frosts set in...keeping a pig, that starts in spring, but start composting now.
    And for those with a voice, perhaps next Saturday's Lord Mayor's Show will provide you with the possibility to throw a few well-aimed rotten eggs and over-ripe tomatoes at those responsible.

  • Comment number 75.

    I have to change the channel when you are on the television, Peston. You are a creepy, android-like individual.

  • Comment number 76.

    Well said in message 74 rahere.

    This problem goes way back into history and involves the philosophy of money and credit.
    Whoever has this power has control of the World and all of us.
    Elected governments have not this power for some reason each person must work out.
    The international central bank system is privately-owned and run for profit not human progress. Same as the World Bank, IMF and Bank of International Settlements.
    97% of the "money" we use is now created by borrowing from private banks.
    If there was no borrowing there would be no money!
    That is why governments are desperate to give the banks funds on demand.
    As William Jennings Bryan said,

    "I stand with Jefferson and tell them, as he did, that the issue of money is the business of government and that the banks should go out of the governing business...When we have restored the money of the Constitution all other necessary reforms will be possible and until that is done there is no reform that can be accomplished."

    There seem to be no great thinkers given air-time just now, or they are successfully silenced.

  • Comment number 77.

    #64 chelyabinsk

    It doesn't really matter where your handle came from, nor have I suggested that you have an affiliation to any party. However your whinge about 'markets' is misguided in exactly the same way that 'socialists' whinges about 'the markets' are misguided.

    Banking goes pear shaped every now and then (part of the cycle) - this is a good reason for the state not to hitch the taxpayers fortunes to them - especially don't nationalise them! Let the bad ones go bust and ensure the barriers for new banks are not set stupidly high.

    Don't try to use little bits of caplitalism to fill the gaps in socialism and then blame the mess on the mis-used bits of capitalism...

  • Comment number 78.


    I too have an odd story of RBS's behaviour-

    Our business uses and makes regular CHAPS transactions-in march this year we had a week when all CHAPS payments into-and out of-our business account were disappearing for 24 hours. The payments were all done in goodly time in accordance with the bank deadlines. After noticing this anomaly and asking qeuestions about it, all CHAPS charges were refunded. The only thing we were told was that the money appeared to be overnighting in a suspense account. No further explanation has ever been given. Obviously we closed our account and took our business elsewhere.

    The cynic in me suggested at the time that RBS were getting interest overnight at our expense! Maybe it was true!

  • Comment number 79.

    Bretton Woods II

    I look forward to reading Robert Peston on the Bretton Woods II conference beginning on November 15th.

    There is clearly a need to create a financial architecture suitable to the needs of 21st century.

    There needs to be a re-defining and separation of the roles and capital adequacy of retail and wholesale banking and the need for a bank to finance industrial re-construction and redevelopment, especially in the UK, once workshop to the world!

    There really is no place for the redundant, tired old socialist, capitalist jibes.

    It's time to pull together in the national interest. Better a coalition government than political clap-trap.

  • Comment number 80.

    And re money laundering-i had heard that it's £5000, but per day, not per month! Thing is, don't try googling the term-the secret service will more than likely track your computer activity! It's bound to be one of those 'trigger' phrases which sets off an automatic warning in the ether!

  • Comment number 81.

    oh dear! GB is busy grovelling/demanding Saudi charity for the world (UK plc), the head of OPEC has insisted that the oil production gets cut asap. GB really made an impact there then!

    Where's Boilerplated? He needs to send GB some of his fruit cake!

  • Comment number 82.

    MagicHatTrick #75

    When life hands you a lemon, make lemonade. Creepy android like people would make excellent Daleks in upcoming episodes of Dr. Who should they produce any. It could be the start of a whole new career for Mr. Peston.

  • Comment number 83.

    I have some savings, essentially in cash, that are going to stay essentially in cash until I see an attractive investment opportunity, which I don't now, and haven't for more than a year. That's a microcosm of why there's a credit crunch; a lot of folks and institutions with a lot more money than me are reacting just the same way.

    As for putting money "under the mattress", I'm putting enough "under the mattress" to cover all routine expenses for a couple of weeks, just in case things deteriorate to the point where there's a "bank holiday" like the US "bank holiday" of 1933 (which I was alive for) and merchants don't want anything but currency. It shouldn't happen, but it could, and I consider enough currency to buy the groceries a reasonable precaution, not panic.

  • Comment number 84.


    I checked the HM customs web site re carrying cash and I read. There is a limit on carrying cash of 10K Euro that is if you are travelling from a NON EU country into the EU. However if you are travelling between EU nations there is NO limit. If this is true then we're being fed a load of baloney as most ex pats if they carry money are usually travelling to France, Spain etc. There are many former east European travellers who carry very large sums of money when they go to the west to buy cars. I saw a German TV programme where the customs did a stop and search and sent their customer on his way with a very large amount stating that reason he was buying cars. No problem. In any case if you show a bank statement that the money was yours what right do they have to take it. I'm curious!

  • Comment number 85.

    #18 Oh dear, the Septics are throwing their toys out of the pram now !!

    It was *THEY* that dictated the control, and therefore, the size of contribution to the NATO !!

    It still is *THEM* that determine the control, and therefore, the contributions to the IMF !!

    It is *THEM* who invented the slogan - No taxation without representation !! Some thing to do with a Tea Party, if I remember rightly !!

    If you want equal contribution, then you should share equal control and representation !! Stop thinking that America can police the world single-handedly.

    Gormless Gordon has discovered that, despite his rhetoric, he simply cannot single-handedly solve all of Britain's woes. He is now in the Middle East with the begging bowl stuck out as far as he can !!

    How long will the next president last if Walmart is forced to quadruple the price of everything because it cannot get the credit or the funds to purchase cheaper goods from China due to *his* (the next president's) protectionist policies ??

    How long will he last when fuel prices double, not because of increasing oil prices, but because no one wants to risk selling to a protectionist regime and not be able to get payment for his sales ??

    How long with the US economy last if the rest of the world dump the $5 trillion US debts and force the US economy to junk status ?? After all, if the US becomes protectionist, then there will be no point in keeping its economy afloat !!

    For too long, Americans have become used to cheap everything. How long will it last when everything doubles, triples or quadruples in price inside Fortress America ??

  • Comment number 86.

    Message for 34. , stanilic :

    Published at 10/29/2008 by Latest Articles

    Investors shun Greek debt as shipping crisis deepens [Baltic Dry down 92% since June]The Baltic Dry Index measuring rates for coal, iron ore, and grains, and other dry goods plummeted below 1000 yesterday, down 92pc since peaking in June.The daily rental rates for Capesize big ships have dropped $234,000 to $7,340 in weeks, leaving operators stuck with heavy losses on long leases. Empty ships are now crowding Singapore and other global ports. "It is extremely serious, " said Jeremy Penn, president of the Baltic Exchange. "Freight rates have never fallen this steeply before. It is telling us that world trade in raw materials has slowed dramatically.

  • Comment number 87.

    #19 A couple of years ago, China passed a law against excessive packing, complete with sharp teeth and draconian punishments !!

    It is one of the things they have done that I thoroughly applaud !! The same should happen here. When bits of cocoa, sugar, flour and cream is wrapped up in a fancy gold packaging that cost almost as much, if not more, than the product, it is seriously taking the mickey.

    Watch all those fancy boxes of chocolates this coming Christmas !!

  • Comment number 88.

    Message for 34. , stanilic :

    Its not the Base rate that is causing this

    From The TimesNovember 3, 2008

    The credit drought is undermining international trade in goods and raw materials with savage increases in the cost of funding for exporters. At the same time, buyers of goods are being denied access to letters of credit - the banking instruments that are the nuts and bolts of global trade.

    Lack of trade finance is having a disastrous effect on shipping. In a report issued on Friday, Maersk Broker, a subsidiary of the Danish shipping group, blamed logjams in the banking system for the slump in the dry bulk cargo market: “Banks’ refusal to offer letters of credit has resulted in very few fresh cargoes reaching the market, which is adding to the owners’ woes.”

  • Comment number 89.

    #22 FYI, Ordinary people also "create" funny money !! If someone buys a property for 250K and the valuation then goes up to 350K simply because it is in a "des. res." location, is that property really *worth* the extra 100K or is that not funny money ?? It is still the same pile of bricks and mortar !!

    If the valuation now drops to 300K, has he actually "lost" 50K in real money since he hasn't sold it yet ??

    So it is not all one-sided (the banks') !!

  • Comment number 90.

    "A contraction in the availability of credit is the main source of our current economic woes."

    No, that's a correction. The problem is exactly the opposite: far too much cheap credit over the years of the bubble.

  • Comment number 91.

    If £100bn was pumped through Nothernrock and B&B (both are government owned) into the mortgage market this problem can be resolved.

    Once of the issues at the moment is people are trying to move out of these lenders as their rates are higher than the market rates, this is creating unnecessary demand.

    Also China should be forced to float its currency, keeping it low and taking Western jobs doesn't help this situation either. For world trade to work it should be fair trade.

  • Comment number 92.

    Well the Halifax has passed on the drop in interest rates in full: they have reduced their standard variable rate from 7% to 6.5% from 1 November 2008.

    So most people's rate (provided of course that they have not been stupid and taken out a loan in the last two years of more than 80% of the property valuation) should be no more than about 6.5%. If it's any less than this then you can of course celebrate!

    Apart, of course, from Northern Rock mortgagees who will have a higher rate than 6.5% to try to presuade them to move elsewhere.

  • Comment number 93.

    .. assets were destroyed in the credit crunch (CDSs etc.) ...

    Is such destruction of assets deflationary?

    I sincerely hope so, because otherwise cutting interest rates further may be Gordon Brown's secret plan for raging inflation - new Labour would thus wipe out the savings of the affluent middle class, disadvantage the prudent, bale out reckless borrowers and reward the sick, lame and lazy.

    Oh and destroy generous pension schemes so that everyone ends up on means tested benefits and can only improve themselves by crime.

    As a by product, the investments of middle East sovereign wealth funds and obscenely rich foreign investors (who are hated by the British public of course) will be wiped out.

    Are there enough votes from the people this would favour to make this attractive?

  • Comment number 94.

    Recession was upon us long before the Govt admitted it, naturally because they hav to wait for statistical survey to prove what many already knew was de facto already here. There was a worldwide collapse of consumer confidence months ago and if the Govt had read the danger signs in time instead of hoping for the best they could have acted then and it might have made a difference. Recession means no growth which is a consequence of weak exports of all kinds and thus no money coming in to the UK. The Labour Govt quite obviously thinks the UK can spend and operate by borrowing - not even by raising higher level taxes or bringing new money into the UK - which is of course complete tosh.

    The speed with which the recession hit means interest rates aren't relevant any more. Lowering interest rates will not restore UK consumer confidence because by now anyone with money will be hoarding it and those without will be far too scared to take credit.

    I listened to Question Time at the weekend: Tory panelist - cut NIC to help small firms. Labour: how are you going to fund it? Clueless, absolutely clueless. Brown will be at the IMF within weeks, not months, and out of office by Xmas. When we are finally rid of this bluffer, we might get some forward thinking RealPolitik and an end to this hopeless 'reactive' style of Goverment.


  • Comment number 95.

    #69 This "pushy female" was probably someone transferred from their now defunct cheap loans/insurance sales team to "manage" customer support !!

    Just ask for her name and contact details and tell her that you are going to "name and shame" that branch !!

    If she threatens you with charges of money laundering, just tell her to go ahead. You might make some money out of them for unfounded and malicious accusations and defamation since it is your very own money !!

    If she insists that there is a 5K limit, tell her to put that in writing to you as to where and when that limit was set and whether they had informed you of it prior to this incident.

    I get the feeling that this person is yet another aggressive ex-sales person that is trying to threaten to shoot customers with a water pistol if they do not comply with some internal "guidelines" to preserve the branch's liquidity !!

    BTW, please do *NOT* put your bank notes in socks !! It makes them very smelly and very hard for others to use them later !!

  • Comment number 96.

    #74 "However, two years ago, that changed, the last penny of the National Debt was repaid"

    To quote Andrew Sachs, "Que ??"

  • Comment number 97.

    #74 "The first step is to summon every single Ambassador to the Durbah Court and inform them that their banking representatives were subverting the Government of the UK."

    Again "Que ??" The rich countries have hardly any banks in the UK and the rest cannot help anyway. And the last British gunboat was torpedoed by the Germans in WW1 !!

    As for "forcing the World Bank", are we going to threaten them with mass exportation of our dole scroungers to them ?? Nukes are out of the question since (a) we don't have any very capable delivery system and (b) we will need every bit of nuclear material we have for any nuclear power stations we may build in the coming years !!

  • Comment number 98.

    ... ok so if the market is entirely capable of determining and setting interest rates ...
    why do we need a central bank?

    All they do is inflate the money supply, and effectively tax the money which already exists in the system.

    We might as well have legalised counterfeiting for the banks ... oh right yes, that's what we've got already! Duh, how stupid of me.

  • Comment number 99.

    "To put it another way, we can't be certain how many creditors - whether corporate or personal - will be unable to repay their debts."

    Not exactly true.

    We know how much money there is. We know the interest rate and we know how much debt there is.

    The ratio of people who will will be able to pay off their debt is the ratio of value the original loan (L) divided by the loan plus interest (L+I).

    Successfully paid = L / L + I

    Failure = 1 - (L/L + I)

  • Comment number 100.


    Thanks for the advice I don't intend to let em get away with this and will be demanding some answers. Just by coincidence a huge letter arrived this morning from my bank telling me what wonderful interest rates they can offer. I don't think that they will enjoy the reply that they're about to get. As for the socks, point taken, I do have a safe anyway bolted to the floor so socks was just a figure of speech since Mr Peston mentions same. I know about smelly cash since when I lived in Africa many customers brought in theirs to buy goods some quite large amounts. Usually hauled out from a tin box buried under a tree, nice earthy smell eh!


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