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How does Bank of England base rate affect actual lending rates?

The Bank of England has dropped its base rate. Why does this imply that banks should lend/borrow at lower rates? Does it mean they can lend/borrow at 3% from the bank of england?

Please don’t answer with ignorant anti bank rants.

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2 Responses to “How does Bank of England base rate affect actual lending rates?”

  1. Love Canada said :

    The rate they set is the rate your bank pays to borrow money so if it drops the bank “should” adjust their rate down,(unless they need more profit at the time)

  2. Steve B said :

    BoE does not lend less than a £billion or so at a time .. so, no “you” can’t get a 3% loan from BoE …

    However it does mean that BoE will pay 3% to other Banks that deposit money with them and will lend them money at 3% ..and all loan notes that are based on BoE rates will now attract lower Interest .

    IN THEORY this means that money is ‘cheaper’ .. so it should be possible to get a lower rate Mortgage deal from the (other) Banks …
    However (as you may have noticed ?) Banks are VERY worried about falling house prices .. so they are adding a big ‘Risk Premium’ (look it up) to their lending rates and demanding high deposits ..

    PS I think you need to read up a bit on the UK Banking / financial system 🙂


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