More on Interest Rates in UK
April 21st, 2007 | by admin |A 7 day stock is competitive with a 1 month money and a 1 month with 3 month
- If interest rates rise in the 7 day market funds may be attracted from the 1 month market. The shortage of funds would lead to higher rates of interest in the 1 month market. This would lead a shift of funds to the 1 month market from the 3 month market.
- Expectations are important if people believe the change in interest rate is only temporary then people will not switch from other markets. On the other hand if the change is expected to be permanent the there will be a shift
In established markets such as London money market or stock exchange, changes in expectations in interest rates are quickly translated into price changes and interest changes.
In other markets changes are much slower e.g. building society
Determination of interest rates
Bank Of England as lender of last resort has significant influence over 7 day market rate, therefore the Bank of England will influence all interest rates in the economy
Other short term rates
Government can set the Rate Of Interest on commercial bills, Treasury Bills and CDs
Long term Rates changes: Interest rates may influence long term rates but they will also be affected by factors such as exchange rate , expected rate of inflation
Interest Rates in UK at Bank of England website