Banks said to be making money from failure to match rate cuts

A recent report has accused banks in the UK of making money from failing to cut borrowing interest rates in line with cuts in the base rate. Although a number of lenders have said that they will be passing on the most recent rate cut in full, this has not happened consistently, and fewer people now relate base rate cuts to borrowing rate cuts.

One official stated: “As liquidity returns, because of recent government and central bank actions, banks are again able to lend to each other and at lower rates. Early signs are that BBA Libor rates – the benchmark of real interest rates – are beginning to come down. As the rates which banks charge each other reduce, there is scope to reduce the rates to customers.”

Earlier this month the base rate was cut by 1.5 percent, and both the prime minister and the chancellor urged lenders to ensure that the full rate cut was passed on to borrowers, to ease affordability, increase spending levels, and stave off a serious and prolonged recession. However, lenders have responded differently to the government’s rate cut.

An industry official said: “Some lenders have announced a reduction in their SVR and have reduced their rate by the full amount. However, a growing number have chosen not to do this and only passed on a proportion of the cut or none at all.”