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Bank lending rates continue to fall but investors are nervous

The rate at which UK banks will lend to each other has fallen for fourth day in a row and now stands at 2.19% on a three-month basis. This rate very much suggests that UK base rates will fall further in the short term and the indication from the Bank of England seems to confirm that situation. The concern is that even though finance costs have fallen sharply since the highs just a few months ago there is still very little activity in the UK financial sector.

Only a few months ago many economic advisers had been suggesting that the LIBOR rate, i.e. the rate at which banks lend to each other, was a key indicator in the potential recovery of the UK economy. However, the rate has collapsed over the last few weeks and yet still we see mortgage lenders refusing to pass on cost savings to customers and yet more conflict between the banks and the government. Quite when the situation will be resolved remains to be seen but the longer it goes on the more harm it will do to the UK economy.

Whether the banks are being over cautious or just plain stubborn remains to be seen.

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