LIBOR growth rate pressurizes interest rate cut

Posted 2007-12-6

The London Interbank Offered Rate (LIBOR) - the rate at which banks lend unsecured funds to one another - has shown sharp growth. Experts say this is one of the key factors behind a probable cut but which has also led to a return of the critical situation in the credit industry seen during the summer.

Interest rates have risen five times since August 2006 and have remained stagnate since July of this year.

Such volatility is now escalating the pressure for The Bank of England to reduce current interest rates.

Additionally, following the Monetary Policy Committee’s (MPC) monthly meeting today, analysts are greatly anticipating the price of borrowing to drop from current levels of 5.75% to 5.5%.

Howard Archer of Global Insight has said that this month’s interest rate decision remains “one of the tightest calls ever,” while Reuters states that the decision to scratch rates remains on a “knife edge” as the MPC are forced to balance a “sharp economic slowdown against rising price pressures.”

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