Payday loans couldn’t survive at 1%
A British Bank is run with precision!
During the economic crisis, payday loans have helped consumers during short-term emergencies. Yet the root causes of the crisis – banks – must be repaired if this kind of consumer credit can continue to exist. The world banking establishment has been reeling for months as the economic crisis has dried up the rivers of consumer credit. Banks and short-term consumer lending must go on, so banks are attempting to right the ship. That’s what the Bank of England is trying to do by reducing interest rates to one percent, reports the BBC. This comes none too soon, as UK unemployment had risen to 1.92 million by the final quarter of 2008.
The general idea here is to encourage lending, but many are concerned that such low interest rates will also harm savers. Business groups feel that the new rate won’t be enough to fix the problem. In an official statement, the Bank of England said this cut, as well as other government measures, “would provide a considerable stimulus to activity as the year progressed.” The European Central Bank has yet to act in kind; rates are currently holding at two percent.
Will it be enough?
Paul Broadhead of the Building Societies Association told the BBC that such a low rate “could hinder the funds available to societies to lend as mortgages.” In the corporate sector, The Federation of Small Businesses believes that the cuts aren’t working as the Bank of England intends and that other assistance is required for businesses to remain solvent. Yet the Bank still anticipates a “significant impact.” Perhaps the impact will be the opposite of what they intend? Citizens who cannot get short-term loans from banks will still have the option of a cash advance, however.
Some like the cut, however
Ernst & Young Item Club supported the cut, but encouraged that they drop even further, “possibly to zero.” John Philpott, chief economist at the Chartered Institute of Personnel and Development said: “The Monetary Policy Committee is right to cut Bank Rate to 1%, even though some question the merit of doing so without greater effort to increase the availability of credit to hard-pressed businesses.” As Philpott sees it, this is the kind of early action needed to boost the money supply.
Saving for a rainy day? This is it! Spend!
Time will tell what impact the lower interest rate will have, and whether more cuts are on their way for the Bank of England. Your payday loans source wonders about the argument of the savers, however. Isn’t increased spending needed to stimulate the economy?
Related articles
- Bank Rate: Cut Again, Say Experts (news.sky.com)
- Don’t cut interest rates building societies tell Bank of England (telegraph.co.uk)
It’s going to get harder to get a pint of the black stuff. It really is hard to remember that this is a global recession, and I hope that this works out for our friends on the other side of the pond.