You know the economy is in trouble when even the Bank of England starts to panic. Mervyn King, the Bank’s governor, did just that this week.
He warned that the Bank’s Monetary Policy Committee “must not allow economic growth to slow so much that it pushes inflation below the 2 percent target”. This was a signal that the Bank is looking to slash interest rates to try and ward off a looming recession.
If you think the Bank cutting interest rates might ease your mortgage and debt payments, think again. The banks might be able to borrow money more cheaply, but they are hiking up the rates at which they lend money out – and pocketing the difference.
NatWest became the first mortgage lender this week to increase rates for existing customers from 6.2 percent to 6.45 percent. The Royal Bank of Scotland raised one of its rates from 5.59 percent to 6.79 percent.
Meanwhile Northern Rock plans to dump some 400,000 customers, forcing them to seek new mortgages at higher rates elsewhere. The lesson is simple – as the credit crunch hits, banks and bosses will try to make workers and people in debt to pay for a crisis of their making.