Interest rates will be cut, say City economists
The Bank of England is poised to cut interest rates by 0.25 points at the end of the Monetary Policy Committee meeting due to be held on Wednesday and Thursday of this week, according to a survey published over the weekend.
Following a study of 60 economists conducted by Reuters, the overwhelming response was that rates will be cut from 5.50 to 5.25 percentage points.
In contrast to last week's dramatic slashing of interest rates by the US Federal Reserve, the Bank of England is expected to favour smaller, incremental adjustments. Speaking to reporters for the Independent, Andrew Smith, Chief Economist at KPMG comments:
"A quarter-point rate cut on Thursday looks pretty much a done deal in the face of tightening credit conditions. Further rate cuts are on the cards – but not until more concrete evidence of a slowdown emerges."
However, while many are preparing to ease their belts a little at the prospect of a rate cut, Britain's biggest lenders have increased the cost of their tracker mortgages by up to 0.45 percentage points in the past fortnight alone – this means that new borrowers will get little or no benefit from the Bank of England's expected quarter-point cut in Bank rate.
Now hundreds of thousands of borrowers who remortgaged with the ubiquitous cheap tracker deals, which were popular two years ago, are facing hikes in their mortgage repayments of up to £75 a month.
According to figures from financial adviser John Charcol, raising trackers in this way will see banks and building societies cream off around £25 million. However, if the 0.25 point cut is made, the trackers will come down again – but only to the rate they were at before the cut.
The MPC has a difficult job at hand - after staving off a cut last month following the quarter point cut in December, pressure is on to see an improvement in conditions for homeowners, consumers and businesses alike.
Inflation from steepening energy and food prices, coupled with the depreciating pound, has to be balanced against fresh evidence of a weakening economy and the continuing effects of the credit crunch.
Learn more about tracker mortgages and compare deals
Posted by ninad at 12:16 AM 0 comments
Hope for UK bank rate cut as Fed slashes interest rates by 50 basis points
The US Federal Reserve has cut interest rates by a further 50 points in a desperate bid to stave off a recession, just a week after its dramatic 75 point cut.
Initially the move to cut rates to three per cent triggered a boost in stocks before they settled down at closing, while the dollar fell to a record low against the Euro.
The cut follows on from last week's shock 75 point cut, which is the biggest easing of US monetary policy since the early 1980s and a move which aims to prove to critics that the Fed is one step ahead of the deteriorating economy.
The US financial markets have been struggling since the sub prime mortgages crisis of last year which has so far spread across most global economies and caused a widespread tightening of lending criteria.
However, economists have indicated that the Fed will consider cutting interest rates again, although the hope is that it will not have to before its next scheduled policy meeting in March.
In a written statement about their decision to further cut rates, the Federal Open Market Committee (FOMC) said: "Financial markets remain under considerable stress and credit has tightened further for some businesses and households."
Commenting on the outlook for bond markets Richard Woolnough, Manager of the M&G Optimal Income Fund, said: "The Fed's decision to slash rates doesn't change my view that a US recession is a probability this year, nor will it prevent corporate profits from falling across the board. I think central banks worldwide will continue to react to the severe slowdown by continuing to cut interest rates aggressively, which is good news for government bonds and investment grade corporate bonds."
Across the pond, the UK is still expectantly waiting for the next decision on UK base interest rate cuts from the Monetary Policy Committee following a plunge in the number of new mortgages approved which hit its lowest level for eight years.
The latest Bank of England figures were weaker than expected and revealed that building societies and banks only approved 73,000 loans for house purchases in the month of December, down from 81,000 in November and 114,000 in June.
It is now hoped that the Monetary Policy Committee, with the newly reappointed Mervyn King continuing in his role of Governor of the Bank of England, will take the decision to cut interest rates in the forthcoming meeting to be held on 6 and 7 February.
© Fair Investment Company Ltd
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Posted by ninad at 12:13 AM 0 comments
Unfair bank charges case continues into third week
The High Court test case into unfair bank charges today enters its third week.
The case, a legal battle between the Office of Fair Trading (OFT) and eight banking institutions, was originally intended to last around eight days, but it now looks more likely that it will go on until mid February due to the amount of material that needs to be considered by the court.
The case started on January 17th at the International Dispute Resolution Centre and has been brought about in order for a legal ruling to be made on the issue of unfair bank charges.
Back in April 2006, the OFT ruled that the fees being charged by banks to their customers for things like exceeding an overdraft limit or a bounced cheque - which in some cases were up to £40 - were unfair, and that although the banks were within their rights to charge, the amount should only be enough to cover limited administration costs.
The OFT said that it did not cost more than £30 to send out a letter advising a customer of a breech in their current account agreement, and as a result, thousands of customers began claiming back the 'unfair' bank charges that they had paid.
But the British Banking Association continued to argue that the fees were fair and just; it was then that the OFT decided to take the issue to court and get a firm ruling one way or the other.
The financial institutions involved in the case are Barclays, Abbey, Clydesdale, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Nationwide Building Society, and all eight maintain their stance that penalising customers as much as £38 on overdrawn accounts is completely within their right.
But there are now mixed opinions into whether an OFT victory would actually be beneficial to consumers; many financial experts are worried that banks would resort to reclaiming their lost profits by taking away free banking.
"If the banks lose the case it will almost certainly be the end to ‘free’ banking in the UK", warned Dale Lovell, Editor of FinanceDaily.co.uk, "because the banks will have to find alternative ways of earning money back from customers."
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Mortgage Interest Rates
To understand why mortgage rates change we need to know why do interest rates change and there is not one interest rate, but many interest rates!
Prime rate: The rate offered to a bank’s best customers.
Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
Federal Funds Rate: Rates banks charge each other for overnight loans.
Federal Discount Rate: Rate New York Fed charges to member banks.
Libor: : London Interbank Offered Rates. Average London Eurodollar rates.
6-month CD rate: The average rate that you get when you invest in a 6-month CD.
11th District Cost of Funds: Rate determined by averaging a composite of other rates.
Fannie Mae Backed Security rates: Fannie Mae, a quasi-government agency, pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae backed securities. The rates on these securities influence mortgage rates very strongly.
Ginnie Mae-Backed Security rates: Ginnie Mae, a quasi-government agency, pools large quantities of mortgages, securitizes them and sells them as Ginnie Mae-backed securities. The rates on these securities affect mortgage rates on FHA and VA loans.
Interest-rates move because of the laws of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more people who want money, buyers, so people who are willing to lend it, sellers, can command a better price, i.e. higher interest rates.
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Thursday, February 21, 2008
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