The general concensus is that the Monetary Policy Committee won’t change the Bank of England Repo rate (base rate) in their meeting taking place this week. Expectations are that the rate is currently on a downward path although inflationary pressures may temper the MPC’s willingness to reduce further and faster.

There are clear economic worries too and suggestions that the US economy is in recession may lead to similar revelations over here in due course.

From a financial point of view the fallout from the US sub-prime credit crisis has meant that banks are generally unwilling to lend to each other and are finding it both more difficult and more expensive to raise wholesale funds.

This gives us an unusual situation.

If you’re a saver the best deposit rates are significantly out of kilter with the base rate. Ordinarily you’d expect to be doing well if you could find a savings rate that was equal to - or just below - the bank base rate. Now, however, you can beat the base rate by over 1% with certain cash ISAs or savings accounts. This is happening for two distinct reasons: firstly general eagerness to raise retail funds and secondly new entrants (typically foreign bank subsidiaries) who have to offer best buy status accounts to obtain sufficient customers through the resultant publicity. 

Of course many existing customers languish in older accounts that do not even begin to compare competitively with the best current offers. If you’re a bank, your customer’s inertia often feeds straight through to the bottom line.

For those wanting to borrow the picture’s not nearly as rosy.

With mortgages there are various general trends being observed:

1. Tracker mortgages are seeing an increase in their loading above the underlying tracked rate.

2. Available Loan to Value percentages are being reduced. I still cannot understand why the 125% LTV mortgages remained available for as long as they did - surely closure last autumn would have been more sensible than closure last week? 

3. People with severe credit difficulties are going to find it extremely difficult to take out new mortgages or to remortgage. Those with lesser credit problems won’t find it so easy either.

One effect of this will be a growth in the secured loan market. If you’ve got a mortgage and since taking it out have had a few payment hiccups (CCJs etc) it may prove cheaper to get an additional loan required by way of a secured loan while keeping your existing mortgage rather than remortgaging for the entirety.

If you have the time, or indeed the inclination!, to read through the recent batch of the major banks annual report and accounts you’ll notice a recurring theme. Most say that they’re concentrating on getting better quality loan business rather than just chasing turnover. They said this last year too.

With credit cards we’ve already seen Egg jettisoning 161,000 of their customers and the various media are already awash with stories about various providers arbitrarily reducing credit limits for certain customers.

The average rate on unsecured loans has increased by just over 1% in the last year for a £5,000 loan: 10.1% APR now as opposed to 9.0% APR a year ago when the base rate was also at the same level as now (5.25%). The best rate for super prime customers has also increased: 6.70% now as opposed to last year’s 5.90%.

With the regulatory attention being given to sales of Payment Protection Insurance we can expect the ’subsidisation effect’ of this to fall away in due course with the effect that unsecured loan rates are likely to become higher in the medium term.