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UK base rates set to fall to 1%

As we await news of the MPC meeting on Thursday there is a general consensus across the board that UK base rates will fall by half a percent to 1%. However, on the eve of the MPC meeting a number of economists have come forward suggesting that interest-rate reductions will not stimulate the economy and it is consumer spending which needs to be addressed. The UK economy is forecast to fall by 2.7% in 2009 and overall consumer spending is expected to fall by over 4%.

The last few months have shown us that unless the banking system is able to increase liquidity then it does not matter about the level of UK base rates because many consumers will be unable to find suitable credit deals. Increasing liquidity together with a reduction in base rates could be the answer but the UK authorities are finding it very difficult to make the banking sector co-operate as they wish.

The situation is very similar in the mortgage market where headline rates have fallen but behind-the-scenes, unless you are able to put down a deposit of over 20%, these lucrative offers are generally not available. What will it take for the UK banks to react in a positive manner?

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