Report reveals lenders not passing on base rate cuts

| September 20, 2010 | 0 Comments

The Bank of England’s Quarterly Bulletin has revealed that High Street banks have not been passing on base rate cuts in full.

Interest rates have been held at the record low of 0.5% since March 2009 (when the country was in the midst of its worst recession in decades), but despite this, banks are not passing this saving on to borrowers.

August figures have showed that banks are charging high overdraft rates - at an average of 19.1% - 38 times more than the 0.5% interest rate.

The report said: “During the recent financial crisis the Bank rate was reduced sharply, but in general the interest rates charged on new lending to households did not fall by as much and indeed some interest rates rose.”

In the influential report, the Bank of England offered many possibilities as to why this was happening.

Firstly, it said banks are looking to boost their capital reserves, in order to comply with new, tougher regulations.

Secondly, higher charges could enable them to profit on new loans to balance their losses, while, thirdly, banks are unable to cut the deposit rate below zero.

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