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Are interest rates really relevant any more?


Once a month without fail the British press gets its knickers all in a twist over what the Bank of England’s decision on interest rates will be and what it will mean for us all. But is this monthly tweaking of rates by quarter of a percent in either direction really that important any more?

The newly impoverished middle classes might be hoping for a rate cut to bring down their mortgage repayments, but the rates banks and building societies charge their customers have been almost completely divorced from the Bank of England base rate over the past year. Regardless of what the BoE does, the moneylenders will set rates at whatever levels they need to keep their shareholders happy.

People feeling the pinch of inflation might be hoping for a rate rise to help bring food and fuel costs under control, but the truth is that the recent spikes in fool and fuel prices have far more to do with greedy, self-serving commodity speculators than anything else. Does anybody believe that putting rates up by another quarter will really make that much difference?

In reality, it seems that the occasional minute adjustments of the base rate are little more than political gestures, and half the time the people who make the decision (the Monetary Policy Committee) are completely unable to agree what to do and end up leaving rates exactly as they are.

Still, as long as people believe that the state of the entire economy hangs on something as simple as whether the Bank of England raises or cuts rates by .25% every now and then, it’s a nice distraction to fill the newspapers with.

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