Central bank loses control of retail interest rates

According to an industry official the Bank of England has effectively lost control of the movement of retail interest rates, because many lenders have continued to hike up their borrowing rates despite the fact that the base rate has fallen three times by a total of 0.75% since December of last year.

Following the last interest rate cut in April one industry official commented: ‘Today’s decision is irrelevant as far as pricing for mortgage borrowers is concerned. The Bank has effectively lost control of retail interest rates, which have become decoupled from the base rate.’

He also went on to state: ‘Any change in the Base Rate is likely to have little or no impact on the cost of raising funds for lenders. Together with the need to control demand this cost will continue to dominate retail lenders’ pricing decisions.’

Following the last base rate cut a number of lenders continued with plans to hike up interest rates on certain mortgage products, and whilst the base rate has remained static for May it is thought that some lenders will still increase borrowing costs for consumers. This means that consumers, and effectively the economy, are not benefiting from the base rate cuts in many cases.