Government puts up interest rates

National Savings has announced increases in its savings rates on certain products. I do not tell you this to recommend them, nor am I on commission! The rates are still quite low.
I tell you because it shows that even the government now accepts that the bank rate of 0.5% is a nonsense when it comes to persuading people to save, just as the banks have long regarded it as a nonsense when they decide how much to charge you for most loans. More and more business simply ignores the MPC’s interest rate decision. Rates are going up, as they have to, whatever the MPC thinks.
These are strange times. In the same week the government allows a bank it owns to fail to pay interest on its bonds, and seeks to show how odd its own Central bank’s interest rates are. Meanwhile the long absence of Parliament means we get no statement on these matters from the Chancellor, and no opportunity to ask him why.


  1. Mark Wadsworth
    August 19, 2009

    The rate on the monthly income account is still stuck at 2% (it went up from 1% to 2% in May 2009).

    Oh dear. You had my hopes up for a minute …

    1. ken from glos
      August 19, 2009

      And mine !! A few years to wait methinks !!

  2. Lola
    August 19, 2009

    Two points. One NS&I don’t pay commission and two, the base rate is at 0.5% as it allows the retail banks to have usurious interest spreads (and hence rebuild their balnace sheets at the expense of ours) without totally killing off the public. Given the current spread over BofE base rate to average mortgage rates of ~5% if the Bof E base rate rose to say 3% mortgage rates would go tgo 8% and 10%+ for distressed borrowers and repossessions would rocket.

    Methinks the Great Deceiver is leaning on MK to keep the Base Rate too low so repossessions don’t happen until post 2010 election.

    1. APL
      August 19, 2009

      Lola: “the retail banks to have usurious interest spreads ”

      I have noticed this too. I keep getting mail shots for personal loans at 7+%. NOT INTERESTED, NO CHANCE, GO AWAY BANK!

      How to alienate your client base.

      Lola: “Methinks the Great Deceiver is leaning on MK to keep the Base Rate too low so repossessions don’t happen until post 2010 election.”

      The banks have a better model after the 2010 election. They should convert into real estate rental companies.

      1. ken from glos
        August 19, 2009

        You think loans at an apr of 7% are too much .Get a calculator out and you will find it is double that. All banks lie on apr because thay think you will look at the bottom line, monthly payments.

        This trend has been apparent for ages.I rang one bank to query it and was fed a lot of Bovine Scatology.Beware all loans the APR is misrepresented.

        1. Lola
          August 19, 2009

          APR’s are a blind. Look at the total amount payable.

      2. APL
        August 20, 2009

        Lola: “APR’s are a blind.”

        Am I wrong to think APR’s are a government requirement. Supposedly intended to bring transparency to the market?

  3. alan jutson
    August 19, 2009

    Strange times indeed.

    And the Houses of Parliament are empty.

    There appears nothing going on, other than the scripted announcements already prepared in advance.

    What a shambles, but there again when they are in Parliament there is a policy of little debate.

    Just about shows what this Government think about Democracy.

    Crisis what crisis.

  4. Stuart Fairney
    August 19, 2009

    Okay conspiracy theory time

    Brown calls Clegg and says “bugger me things are in a mess, time for a government of national unity and no pesky elections because they would be destabilising, you can be in power as well okay”

    Nah, impossible.

  5. Acorn
    August 19, 2009

    Those buggers at NS&I haven’t put up the prize fund for Premium Bonds. I have got a bucket full of the things. The bank tells me to get rid of them; but, I am still waiting for that one mil’ cheque. How sad is that!

    Question JR. The US Treasury has a limit set by Congress on the amount it can get into debt. Is there an equivalent limit for the UK Treasury, presumably set by the HoC; or, is the sky the limit?

    reply: There is no limit unless Parliament fixes one by majority vote – and this government controls the majority

  6. anoneumouse
    August 19, 2009

    It amazes me that in the past 28 days, government has ‘laid before Parliament’ 108 Statutory Instruments.

    I thought Parliament started it’s summer recess on the 21 July 2009

  7. Brian E.
    August 19, 2009

    I don’t think bank’s interest charges for loans are quite as bad as they seem; if they are to lend, they have to attract an equivalent amount in savings. There are a number of banks / building societies offering up to 3½% for a year and more if you are prepared to consider lending for 2-5 years. And there are several more where you can get 5% for regular savings. NS&I are going to have to raise rates if they want to attract money, and the desperately need it to help fund the Government’s borrowing. Surely general lending and borrowing rates are nothing to do with the Bank of England, normally they would be fixed by competition between the banks. The government has not helped this by the forced merger of Lloyds & HBOS. To my mind, the banks need to be split up, as we only have 4 major banks, two of which are effectively government controlled. Hardly much incentive to be competitive!

    1. Lola
      August 19, 2009

      I think what we are saying is that the BofE base rate is a nonsense. MK and GB have lost control of the money supply and the banks are out of control. The market is gradually taking over the setting of interest rates – as it should – and MK/GB will be marginalised.

      MK main job at the moment is to keep Gilt prices high – or rather Gilt interest rates low.

      The problem with the banking cartel being out of control is that it pofiteers, it’s a monopoly. It profiteers because they can.

      There’s is a very good article in the Telegraph today by Edmund Conway that discusses this cartel.

      1. Brian E.
        August 20, 2009

        Yes, I read the article. The problem is that he also points out the difficulty of starting up a new bank. Hence my argument that some of the existing banks should be broken up. Lloyds/HBOS should be forced to split into the three banks from which it was originally formed. To have only 4 major banks in this country is just ridiculous.

  8. Mike Stallard
    August 20, 2009

    On Labour List yesterday was an article which said that the national debt didn’t matter that much because, in the past, the government had defaulted twice on debts and therefore it could do so with impunity in the future.
    At least, that is what the commentators underneath thought it said.

    Without proper discussion of the economy and of Statutory Instruments, there are going to be either a lot of small mistakes or a very big mistake.

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