Banks have reasons for not passing on interest cuts

By Sarah Engle, Tue 15 Apr 2008 - Published in Banking

Banks that have not passed on the latest interest rate cut from the Bank of England have legitimate reasons for their actions, an expert has said.

Paul Dales, a UK economist at Capital Economics, said banks may not pass on the decrease in the base rate of interest because of the higher costs of funding in the wholesale market.

However, Mr Dales did express a degree of surprise over moves by banks in recent years to increase rates on home loans.

"I have been quite surprised at how marked the rises in mortgage lenders' rates have been, how widespread it has been and how many lenders have had to pull different mortgages," he said.

He noted that banks have made some "incredible profits" in the last five or ten years, but pointed out that they are there to make a profit.

Capital Economics provides economic research on Asia, Europe, the US and the UK, as well as on the property sector.

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