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LIBOR Rate Hit Three Month High

It seems as though speculation that the next interest rate move in the UK will be higher is starting to feed through to the money markets. LIBOR, which is the rate at which banks lend money to each other, hit a three month high of 5.95% today as many dealers reluctantly agreed that UK interest rates are set to rise in the short term. So how does this affect the markets?

This increase in the cost of borrowing will have a major impact upon all areas of the economy with increased finance costs likely to kill the housing market and paralyse the business sector with more and more companies looking to borrow funds to see themselves through the hard times. This type of move is often preceded by a tightening of the lending policy of the UK banking sector and more company overdrafts being called in for repayment.

The signs on the high street are that consumers are certainly cutting back on ‘luxury’ spending which has forced many companies to the brink of financial ruin. We have seen a number of clothes retailers close their doors with the likes of MKOne among those who are suffering.

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