The Bank of England usually pegs inflations, right Turi? I can see why you're surprised then. I wonder if rate cuts will do anything when there is an inherent problem with confidence in lending. When does it/did we go from a yield problem to one of irrational (or maybe rational) fear?
Oh and "one more thing" (I've got my Columbo head on).
Yes, hopefully the rate cuts will increase confidence in lending. But more importantly here just yesterday, a proposal by the UK Government has been to plow £50b back to the UK banks, thus raising liquidity (I don't know if the US are doing anything similar). This is hoped to increase confidence in lending between the banks. If this happens the rate at which the banks borrow off each other (the Libor rate) should decrease. If these decreases happen, the savings are then passed onto borrowers.
The reason why this rate is more important is to do with mortgages. Tracker and Variable rates are generally determined by the BOE base rate, these customers will benefit from the recent rate decrease (so long as the banks pass on the savings). However, fixed rates are determined by the libor rate. The £50b introduced back to banks needs to decrease the libor rate, otherwise the exercise could be pointless. It's quite topical over here that the big bank executives are earning rediculously incredible bonuses (considering the climate) and the public fear that this money will just go to the fat cats pockets. However, it's a strong Government stipulation that this doesn't happen.
