Bank lending rate almost as low as base rate

25 September 2009

The three-month sterling LIBOR rate (London Inter-Bank Offered Rate) fell to 0.57% this week - just 0.07% above the Bank of England base rate - prompting hopes that lending markets may be returning to pre-credit crunch conditions.

The Bank of England lowered its base rate to an all-time low of 0.5% earlier this year, in an attempt to encourage higher levels of lending. But the Bank`s efforts were held back by a number of other factors, a particularly prominent one being a high LIBOR rate.

The LIBOR rate is the average rate at which banks are lending to each other at any given time. It is used by many banks to set interest rates on loans, mortgages and other forms of credit.

But at certain points this year, the LIBOR rate has been almost 1.5% higher than the base rate, helping keep interest rates on consumer lending high.

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