Oh excellent....
So those that brought houses they couldn't afford, ran up debts of £20k on half a dozen credit cards drank, smoked and *** their money up the wall and nearly bust the country.....will be rewarded with an interest rate cut to help them borrow and spend even more...
Those that saved, were "prudent" ( his words not mine) acted responsibly and thought about the future anticipating the boom and bust...
Well we will shoulder the burden of the irresponsible and take an interest rate cut so we get 3% while inflation runs at 5%+.
Kick the pensioner and their meagre incomes in the teeth why don't you Gorden....

Well said I couldnt agree more perhaps leaving interest rates alone and reducing tax rates would have given everyone an opportunity to spend more

I have to agree. As a saver who has a modest income, a small house, an average car, who buys without borrowing or goes without and has just reached the time of life when my savings are providing a reasonable return does this happens. What is the point of being sensible, prudent and moderate when the rug can be pulled away without notice.

There was a minister on the Radio today that said drastic action was needed to halt the housing crisis !! The IMF says UK house prices are over valued by 35% and this minister see's a drop of 15%, and declares a crisis !!

Does anyone else not see any logic in the governments favourite phrase..spend your way out of recession..

It strikes me that the government wants to see a return to the spending and lending levels that were common a year back...the very levels that got us into this mess in the first place.

Thats my Mr angry bit for today :-)

Beyond me - if savers were encouraged to fill the banks then the Gov't would not need to bail them out using taxpayers money.

All this is done is yet again say borrowing and debt are fine. Trying to teach my son the value of saving and avoiding debt is an uphill struggle.

Is it the Bank of England or the Gov't yet again who have lost the plot. I thought Mervyn King was holding his nerve - obviously not.

Alternatively the strategy might be one where between the Bof E and the Govt they are helping the Banks to make more money by lowering interest rates for them including the Libor rate whilst the banks maintain their levels of loan/debt interest raising profits to reduce the Gov't exposure to their liquidity problems.

Well said Splodge,

There will be many not so "Prudent" people out there paying less in mortgage payments fro next month who say "Just in time for Christmas spending spree" and carry on the same after the festive season without realising the implications of a very the very severe, forthcoming recession.

Now there will be reduced levels of saving and you can bet your bottom Dollar that not much of this "extra" money will be going into paying extra amounts off their mortgage early.

Inflation would have gone down anyway, Brown is going to see the biggest Boom and Bust in living memory.....

Hi,

I totally feel the same - the current system favours people who borrow lots of money, and not prudent savers.

Maybe someone can help figure this out - how exactly does the base rate effect interest rates for bonds and savings accounts? I mean, under what conditions can banks borrow money from the government? Obviously, if the banks need good collateral, this is exactly what they don't have at the moment. So they can pass on the cuts to home owners (provided that they believe their houses are good collateral), but they won't get money if they have lost a lot during the current crisis, because for the money they need now there is no collateral. That means then, they are still forced to pay people like us significantly higher rates on for example fixed rate bonds. This means the the central bank's rate (in whatever country) only affects savings rates very indirectly through the general amount of liquidity. And that will take time.

At least from looking on this and other sites I had the impression that there are still pretty good deals around. And from the logic above you might expect that to remain at least for another while. But I'm only speculating.

What about this then ?

Had the banks put interest rates up to 10% then money would have poured out of the stock market via private investors like myself and into banks/savings and the government probably would not have had to pump billions into them.

The government does not want you to save. the system they have built up is all about you spending even if you have not got any money. The faster you spend the faster they pull in tax in the form of business tax ( shops) and vat etc.

The sad truth is that as savers you are of little use to the government or society in the short term and governments only govern in the short term. GB doesn't care about you saving for a rainy day !! by the time that rainy day comes he will be long gone. He doesn't want "you" to prop up the banks with savings, thats why he has done it himself so you can go out and spend spend spend your way out of recession...lol

The other parties also know this is the only way the system works and that is why even the Tories are saying this drop in interest rates is a good move and we should all hit the high street.

The government are all to happy to tell you that we have had the longest period of sustained growth but that growth was built on debt.......they didn't mention that though ;-)

You're probably right, sadly. No paper ever celebrates interest rates up and savers being better off, everyone now is writing about some mortgage borrowers who could end up paying 0% real interest rates if they had fixed there rates to the base rate at the right moment.

I think the lower interest rates already have sent the pound down, again, which will lead to higher prices for imports. Then, all that borrowing and spending, because the amount of goods and services does not increase, will also create inflation. The government pretend to be concerned about inflation, but the truth is that inflation is like a drug. I makes us all look richer, while the government can use it to tax us without us noticing. For example, the tax bands get lower and lower in real terms, and your interest on your savings account is taxed not on real profit, allowing for inflation, but at the nominal profit. So if you get 5%, 1% goes in tax, and 4% you loose against inflation, you keep 0%. That's a tax rate of 100%. Compare that to 0% real interest rates for some borrowers.

Maybe I'm veering off track here. Not sure what to do - maybe there is a chance that some banks will still have to pay higher interest rates to savers?

Worth looking at an e-saver with B&Bingley. I have one and they are paying 6.5% on new accounts. Have to say the service has been great as well.

Goverment backed as well so quite safe :-)

I'd prefer to see a cut in income tax. Cuts in mortgage interest may help, and help the housing market in particular. But a reduction in the burden of income tax would be even more welcome.

Why do you want to help the housing market ?? are you an estate agent ?? :-).

Houses are grossly over priced, the EMF says as much as 35%. young people are forced to take out mortgages they cant afford. Banks were pushed into lending 6x wages and even 110% mortgages which people were daft enough to take...thus pushing prices even higher. Now for the first time in years we are seeing a small drop in prices ( remember they have gone up at 6-8-10x inflation/wages for years) and people say...its a housing crisis !! Unless you are a high rate tax payer you income tax is relatively lower than it has been for years ! If you were to do a survey as to where your money goes the vast majority goes not when you earn it but when you spend it. The cost of the goods you buy does not just include 17.5% tax...it also includes a large proportion to wards the shopkeepers tax and his staff tax etc etc.

The reality is that the tax you pay on earnings is quite small compared to the tax you pay on spending those earnings....

As for Houses ? absolute rip off in my opinion. :-))

A cut in income tax rates is always welcome, but at sometime in the future tax cuts and/or increased public spending will have to be earned or paid back.

All very well if the economy does respond fairly quickly but if this Zero Interest rate happens and we get stuck like Japan with their lost decade, I do wonder who will foot the bill. Of course - Joe Public through higher taxes like the 30% in the late 70's

I just hope GB and AD make the right decisions.....

The government should admit that they take away people's money through creating inflation. Which means, the losses you make on your savings through inflation should be tax deductable. That makes a huge difference already at the 20p tax band.

Don't think that exists anywhere - they'll say it's too difficult to define the change in price index, or too arbitrary. But what about taxes is not arbitrary?

Uncle Merv said today that RPI inflation could go to a minus figure, Interest may go so low that money goes back into stocks or back under the mattress!!