I have long argued for the need for interest rate cuts.
Let me be candid: I think there is no justification for base interest rates to be above the rate of inflation. If they are, there is a deliberate exercise in the upward redistribution of wealth going on in a society, and no state can afford that in a world of the type we live in, where the wealthy already have far too much economic power.
However, as with everything else, interest rates need to be reviewed right now in the light of what Trump is doing, and the resulting threat of recession and even depression hangs over us.
It is known that Trump wants lower interest rates.
For once, I have to agree with him, but not with his reasoning.
Governments around the world now need to realise the threat that we face and address it as soon as possible, and not wait until a downturn happens. The threat to economies that Trump has created through his trade war requires that central banks, or the governments that control them, now cut interest rates very significantly, and as soon as possible.
They should then take measures to ensure that the advantages of this flow through into the economy, including by allowing the renegotiation of fixed-term mortgages in the UK to ensure that those in most need get the benefit of these cuts with minimal penalties.
Unless this happens, the recession coming our way is going to be very much worse than it need be. But will Reeves have the courage to act? There is no sign of it as yet.
We need interest rates of no more than two per cent now, and they may need to go lower. Anything more, and the government will be deliberately crashing the economy very soon.
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There is no justification for interest rates remaining above the rate of inflation. When they do, it amounts to a deliberate upward redistribution of wealth—benefiting the asset-rich while punishing those with debt. This is not economic necessity; it is a political choice.
With global instability mounting—exacerbated by trade wars and protectionist policies—the threat of recession or even depression is real. Interest rates need to be cut significantly and urgently, with clear measures in place to ensure the benefits flow through to households, including the ability to renegotiate fixed-term mortgages without excessive penalties.
However, as this site noted on 27 March 2025 (“Rachel Reeves’ figures in the Spring Statement don’t stack up – and are very scary”), there appears to be no appetite for such action. Reeves, the OBR, and the Treasury are all aligned around a strategy that keeps interest rates high—not to manage inflation, but to attract foreign investment.
If this policy continues, the resulting downturn will not be a surprise. It will be the result of a conscious decision to prioritise capital inflows over domestic stability.
Cuts in base rates mean very little it is the term structure of interest rates that matter and the curve is steepening with gilt yields at the longer end heading towards 5.5% and it it this which influence mortgage rates and the cost of company borrowings. Would you therefore advocate a return to QE to manipulate the yield curve and bring longer rates down?
If necessary yes, although I do not think QE is required to achieve that goal, as I have said many, many time here. C hanging the rate on CBRSs is enough.
Cuts in base rates make a hell of a difference to those with mortgages though.
Not just those with variable rates but those on fixed-term deals based on: yes the base rate.
I signed off on my current mortgage in 2007, after buying a small place for myself. I’d tried paying for the bigger house I had with my ex but the upturn in the variable rate then (spurred on by the first rumblings of the impending credit crisis) meant the mortgage doubled in 1 year.
I fixed my new mortgage for 15 years at 4.7%
Then, 2 years ago, with much lower base rates I was able to take on a 5-year fixed rate at 1.35%
That meant almost €600 per month less to pay. More money to pay for other things.
That is now what must happen for everyone, to weather the coming storm.
There is more coming on this….
Uncertainty is a real growth killer and we have that in abundance. Given the time lags with which interest rate changes act in the real economy we need action now.
I hear you when you say 2% ….. but you know that won’t happen. I would, however, expect 1/2% cut to 4% at their next meeting.
It needs to happen
I lay down markers
It will happen
Most credible economists are familiar with the concept of the ‘time value of money’. In this theory, people prefer consumption now rather than in the future, so they need a positive real interest rate in order to compensate them for deferred consumption / investment.
If real rates are negative then they is a strong disincentive for investment, which is the opposite of what we need as an economy.
This isn’t a controversial opinion, it is standard economics.
92% of the world’s economists are neoclassical / neoliberal.
Every word they teach is drivel, based on fantasies that make the Bible’s tale of the virgin birth look utterly plausible and believable.
In the real world – soemthing into which very few of such economists have ever ventured – peopole do not save to earn interest. They save to have funds for future events. Their decision making has literally nothing to do with interest rates. Look at figures for gross ISA cash balances over 25 years as evidence. Rates made no dofference.
And if you knew anything about bank lending you would know saving has literally nothing to do with the funding available to investment – which is all created by banks. The Bank of England agrees.
And again, if you knew anything about business you would know that the a key determinant to investment decisions is low interest rates.
So, what are you? A neoliberal? Ignorant of economics, savings and investment? Or just a troll? Or, maybe, an ex-Tory MP, and so all three?
Are you really kidding yourself that these ‘markers’ you are laying down have one iota of influence in what will happen in practice?
How deluded and arrogant are you?!
You noticed.
In your sample of one, that’s 100% success
I see that some lenders are reducing their mortgage rates.
The Highly Suspect Banking Corporation and Co-Op have cut rates alongside the Highly Bailed Out Society group easing lending rules.
https://www.theguardian.com/money/2025/apr/15/hsbc-and-co-op-bank-cut-mortgage-rates-as-halifax-and-lloyds-ease-lending-rules.
No doubt Reeves and Bayley will continue their congenitally acquired obsession with cast iron fiscal rules and destructive base rates.
“In your sample of one, that’s 100% success”
Bravo!
It used (once upon a time, but I’ve not seen it for a long time) to be the fashion to lick a forefinger and chalk a point in the air.
I just did it for you.
🙂
“Uncertainty is a real growth killer “. Indeed. & gov can create certainty: via interest rates and action – e.g. empower & fund local gov to build fit-for-purpose social housing (or rennovate not-fit-for purpose) – gov can do plenty – that it does nowt shows that the current gov might talk “growth” but is unwilling to put action/money where its mouth is (whilst pretending it is via tokenism).
“people do not save to earn interest”.. what nonsense. Of course they do. Fair enough some idiot will hold cash yielding zero and see their savings will be inflated away but most will look for a high rate of interest on cash or an attractive credit spread on bonds to keep their purchasing power in tact.
Read the original comment.
It said people will not save without interest.
That is glaringly obviously untrue. We did it for more than a decade. The fool here is you.
As an economics teacher who has taught introductory economics to 13 year olds, you start off with the basics, such as saving motives.
One of the big ones, which is getting bigger as in-work poverty increases, is saving for replacing the broken washing machine or fixing the dodgy boiler.
Or a holiday
Or a wedding
Or retirement
Bit interest is decidedly secondary – and never motivates the saving, I suggest
Richard,
Your last comment was exactly my point and I was trying to reply to a comment above yours that stated interest is always the saving motive!
Sometimes the direct reply function here isn’t working it seems.
There is something very wrong with interest rates in general in the UK and possibly many western economies.I agree that the base rate shouldn’t be much greater than inflation and that all other rates for mortgages, loans and credit cards should be related to the base rate. People are paying 40% pa on overdrafts and 25% on credit cards which to me seems bordering on usury. I know some of these carry high risks of customer default for the lender and people don’t have to borrow in this way.
I would like to see mortgage rates at base rate(just above inflation) plus 1 or 2%, personal loans 2% above this, credit cards and overdrafts at a maximum of inflation plus 10%. All legally enforced. Another step on the road to eliminating rentier capitalism.
I have more to come on this