Thursdays Interest rate cut has so far the cut has failed to have any significant impact on the interbank rate which stands currently at 6.64%, which has resulted in the spread increasing to 1.14%. This illustrates the current extreme impact of the credit crunch liquidity squeeze that is not only impacting the financial sector but now hitting the whole UK economy and is likely sounding alarm bells throughout the financial sector and at the Bank of England.

What this suggests to me is that the trend towards greater liquidity and lax credit financing requirements in terms of risk for the past 17 years has now come to an end for the foreseeable future at least. The spread confirms earlier analysis, that the housing market is now in a bear market whereby the credit markets will continue to retain a large positive spread despite the forecast cuts in UK interest rates to 5% during 2008. This means there is expected to be little relief for the UK consumer and home owner from these cuts, against what one would expect during the past rate cutting cycles that would result in a neutral to negative bias to the spread.

For More on the interbank spread - http://www.marketoracle.co.uk/Article3008.html

Nadeem Walayat

I get a horrible feeling that when this debt culture collapses it is going to be a hellofa bang.