Libor fall could herald rates reduction

Normally, Libor would be expected to stand at about 10-20 basis points above bank base rate, i.e. a rate of about 3. 10 to 3. 20%. However, in these uncertain times Libor stands at a full 1. 4% above base rate. Indeed, when the bank recently made its half per cent cut in rates, Libor jumped up not down.

The good news, for politicians and home owners alike, is that rates appear to be heading downwards and that should help to ease the financial burden on home owners as lenders cut rates to them.

The downside is that, for depositors, rates will also have to fall. However, depositors are in the relatively fortunate position that banks need them to replace the wholesale funds that are now so difficult to obtain. Hence, the rates of offer for depositors could remain above the levels we would expect as banks scramble for their cash.