why have they dropped the interest rate ?

[krusty]

In 1980`s up to 1990 when things where going wrong the interest rates went up and up to 15 % ?

[Clarkkent]

To encourage people to start spending.

The very high interest rates of earlier times were attempts to stop currency speculators from selling sterling,

[Will]

When times get hard things can go either way where interest rates are concerned. Previously, because money was very tight, putting it very simply, the price of money went up - the old story of supply and demand, especially in the free market economy which was what was being promoted then. Now, the Bank of England, and most of the other European financial institutions, are looking to encourage not only spending by the public, but growth for businesses, so they are trying to keep money relatively cheap. With many lenders in trouble, the surviving institutions need to be more competitive, rather than potentially raking it in as they did before. Conditions imposed by governments who are helping out the banks are likely to discourage high interest rates and high profits.

Even so, it was a bit of a surprise to see a 0.5% drop in conditions that normally encourage a rise.

[AnOther]

[quote user="krusty"]In 1980`s up to 1990 when things where going wrong the interest rates went up and up to 15 % ?[/quote]For one day and in totally different circumstances.

In 1990 UK entered the ERM but the £ fell foul of speculators who forced the government to defend the currency by the only means available, the interest rate. When it reached 15% and they were still unable to maintain sterling in the requiste band of +/- 2.25% they were forced to capitulate and withdraw on a day dubbed 'Black Wednesday'.

[Will]

Thanks for that link Ernie, it reminded me of those days of greed and speculation. Not that we were immune, we had a mortgage in ECUs (remember them?), which proved a good hedge against high rates and currency fluctuation until things got out of control.

[andyh4]

..............or an alternative view.

Because they realise that the only way out of the mess we have is higher inflation.  As stated dropping the rates increases spending, increased spending usually leads to higher inflation.  Higher inflation means that the debt becomes devalued (and less of a problem), and house prices quickly become more affordable without the bottom dropping out of the market and everyone being P***ed of with government because their 1m pile is now only saleable at 500k or less

[krusty]

Thanks for the replies , it still hard to understand , mainly due to the term that is getting used a lot "credit crunch" .That makes me think money is tight , stop spending.[8-)]

[united]

Interest rates are one of the levers used to try and control inflationary pressures, at present this pressure has eased with commodity prices falling and the likelihood of industry output falling. Added to this is the reluctance of banks to lend to each other. If intrest rates increased many business would fail or contract leading to higher unemployment and lower tax.

Its not all doom and gloom in the UK we taxpayers may well get a significant percentage of the bail out back.

 

 

 

[annie]

[quote user="krusty"]Thanks for the replies , it still hard to understand , mainly due to the term that is getting used a lot "credit crunch" .That makes me think money is tight , stop spending.[8-)][/quote]

Know what you mean...I am trying to educate my teenage daughter to save a percentage of her cash. Difficult when she is a student earning only from weekend job and surrounded by a culture of obtain now, pay later. I saw a French chap on the news who has returned to France after 10 years living/working in London. He said, although he loved it in the UK he still didn't understand the British spend culture-want so shall have etc. He said the French were not like that and that, on the whole, if they wanted anything they saved to get it and weren't as materialistic. Is this a true reflection of the French?

[Cat]

Was this the French chap you were thinking of Annie?

http://news.bbc.co.uk/2/hi/europe/7635327.stm

[Gardengirl]

I also think the French, on the whole, save when they want/need something. However, not all in the UK have the 'want it must have it' mentality, although the papers often run accounts of  people and their spending. We certainly don't live like that, our adult sons are level-headed about money, and so is nearly everyone we know - nobody we know buys all the latest fashions, TV sets, cars etc. Our cars are getting on a bit, the UK kitchen was already here when we bought the house nearly 30 years ago, and appliances have to wear out before being replaced. We sound like misers, but we do enjoy meals out, although not every week, and also enjoy holidays; we did buy an apartment in France recently, which will be used by us and the family for holidays, and will be kept for many years, we hope. 

What do others think about people in the UK and their spending?

Jo

[Poppy]

A friend works for a very expensive car company, cats, in the UK. For a couple of years now she has been saying that she couldn't believe people were buying cars for £75,000 plus and adding it onto their mortgage debt with no problem at all. Six and two threes as to who is to blame. Fairytale economy comes to mind.

I won't go into too much detail but have just lost our complete nestegg due to being too frugal and honest.  Would have been better off buying a new car and spending money on renovation of house and face (very lined in the last few days) instead of living in a caravan and paying all taxes etc.What does that say for the state of the world. Have set up the intravenous port & brandy drip

It is getting very Icelandic in the caravan these nights [:D]

[Sprogster]

Why does every question turn into a UK versus France debate? The current economic crisis is a global one and not specific to any particular country and the interest rate cut of half a per cent was implemented on a coordinated global basis to prevent the international banking system collapsing.

The perception by the way that the French do not buy on credit is out of date, as I get as many unsolicited offers of credit cards in France as I do in the UK. Some posters may not see this, as after a certain age you tend to be dropped off mail shot lists as the marketing perception is that retired people are not active consumers. 

 

 

[Poppy]

Is the UK not the financial capital of the world? I totally believe that most people in their day to day business in the banking community have only a narrow view of what is happening and there are an elite few at the the top of the pile who control things. They will be creaming off the billions poured in now and we will see the same crisis occurring in a few months time.

[krusty]

[quote user="Poppy"]

I won't go into too much detail but have just lost our complete nestegg due to being too frugal and honest.  Would have been better off buying a new car and spending money on renovation of house and face (very lined in the last few days) instead of living in a caravan and paying all taxes etc.What does that say for the state of the world. Have set up the intravenous port & brandy drip

It is getting very Icelandic in the caravan these nights [:D]

[/quote]

So sorry read about your loss , glad to see you have a sense of humour about it though .

[Clair]

[quote user="Sprogster"]The perception by the way that the French do not buy on credit is out of date, as I get as many unsolicited offers of credit cards in France as I do in the UK.[/quote]

There are offers of credit cards and loans made via mailshot and magazine inserts, but the credit checks are much tighter in France than in the UK.

[Poppy]

Many thanks for your kind word Krusty, they really mean a lot. Can't believe the situation we are in have watched it evolve or perhaps dissolve for the last couple of weeks without us being able to control it. We have tried everything even had a long discussions with the IOM treasury a couple of days ago, not sure whether we can do wrong for doing right   If we had used a 'pretend' UK address  would still be quids in. Don't know whether I am in for character building at near pension age but looks as though I have to go for it [:D] We managed to buy a couple of bottles of port and brandy on the card yesterday before they pulled the plug [:D]

[annie]

[quote user="Cat"]

Was this the French chap you were thinking of Annie?

http://news.bbc.co.uk/2/hi/europe/7635327.stm

[/quote]

Yes, that's the guy. Why?

[krusty]

Poppy these things happen so quickly , I`m with B&B and the signs where there that something was going to happen , but I  still left my money with them .Now its with the Spanish , fingers crossed it stays ok.[:D]

[Poppy]

Krusty, These things are happening so quickly.  If you have your fingers crossed and a feeling in your water please think about  security of your money. The truth is in the small print, is the depositors protection responsibily of UK or the Spanish authorities. I don't want to start any alarm bells but I certainly don't want any one else to go through what we are going through at the minute If you have any 'thoughts' please do a lot of research.

[mint]

[quote user="Poppy"]

A friend works for a very expensive car company, cats, in the UK. For a couple of years now she has been saying that she couldn't believe people were buying cars for £75,000 plus and adding it onto their mortgage debt with no problem at all. Six and two threes as to who is to blame. Fairytale economy comes to mind.

I won't go into too much detail but have just lost our complete nestegg due to being too frugal and honest.  Would have been better off buying a new car and spending money on renovation of house and face (very lined in the last few days) instead of living in a caravan and paying all taxes etc.What does that say for the state of the world. Have set up the intravenous port & brandy drip

It is getting very Icelandic in the caravan these nights [:D]

[/quote]

Poppy, I am truly sorry.

I can imagine how you must feel.  We ourselves are anxious.

My OH is 77 and at his time in life, we can't expect to bounce back after any major setbacks.  As for me, I am very young (no, not really) and I would be prepared to go back to the UK, get a job and start from scratch if needs be.

I still think that having our health is our most valuable possession and that we do have to a large extent.  Don't want to complain but I can really understand the worrying time for lots of people.

[Poppy]

Thanks Sweet; Usuallly we have been able to  be positive and say yes we have our health, but unfortunately not this year. OH has blocked arteries, blue foot etc. I have put CVs online for employment in UK but another mental battle do I go to UK while OH is battling with chronic illness.

[mint]

Oh Poppy, these are indeed worrying times for you and your OH.

I'll keep my fingers crossed that somehow things will work out not too badly for you. [kiss] 

[Poppy]

[quote user="sweet 17"]

Oh Poppy, these are indeed worrying times for you and your OH.

I'll keep my fingers crossed that somehow things will work out not too badly for you. [kiss] 

[/quote]

Thank you Sweet for those sweet words.

Just taking a break from packing to go the UK. Got no choice, on the positive side it is nice being in UK in the winter.

[allanb]

[quote user="ErnieY"]In 1990 UK entered the ERM but the £ fell foul of speculators who forced the government to defend the currency by the only means available, the interest rate. When it reached 15% and they were still unable to maintain sterling in the requisite band of +/- 2.25% they were forced to capitulate and withdraw on a day dubbed 'Black Wednesday'.[/quote]A more realistic explanation : the government foolishly tried to maintain the exchange rate at a level higher than the market thought the pound was worth.

There are only two things a government can do to achieve that: it can buy its own currency (but that can only be temporary, because it will eventually run out of foreign currency reserves); and it can keep on raising interest rates to attract deposits (but that can only be temporary, because the economy can't stand it).  In the meantime, you have an artificially expensive currency and an economy that can't compete.

The Major government tried both.  Finally, running out of reserves, it borrowed a huge number of deutschmarks in order to continue to prop up demand for sterling.  Major called it "brilliant"; it was in fact amazingly stupid.  All that it achieved was to make it obvious that sterling would have to be devalued soooner or later, and if you had the financial resources to bet on it, you could make a large profit (as George Soros did, for instance).  But the profit was a gift to Soros and others from the British taxpayer.

When it was all over, with the pound at a realistic level and interest rates back to normal, industry started to recover.  The government, of course, took credit for the recovery, and the whole fiasco - including the enormous loss - was blamed on "speculators".

People love to have someone to blame.