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Why have lending rates not fallen?

If there is one situation that is puzzling UK taxpayers and UK businesses it is the fact that despite base rates having collapsed to 0.5%, lending rates in the UK are still fairly uncompetitive compared to the base rate. This is a subject that Alistair Darling has been very vocal on this week as he attempts to force more pressure on the banks and hopefully pull the UK economy out of recession. But why are the banks refusing to play ball?

Even though UK base rates have fallen to 0.5% and the UK government has poured billions upon billions of pounds of taxpayer's money into the system, money market rates are nowhere near 0.5%. There are still significant concerns in the banking committee that the recession is not over yet and a substantial investment into corporate UK and UK consumers could well backfire and place them back in trouble in the short term. This is a policy that the UK government had supported until lately, reduced risk in the future, but now appears to be turning tail.

Despite hopes that the dispute between the UK government, UK regulators and the banking community were over it looks as though we could be in for round 2 - ding, ding!

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