Base Commercial Mortgages Limited, the specialist commercial mortgage lender, believes that when the Bank of England Monetary Policy Committee meets this month it should focus its attention on reducing interbank rates, rather than Bank Base Rate, in order to unlock the current financial log-jam.

Mark Davies, Finance Director at Base, said: “The dislocation between Bank Base Rate and LIBOR has placed an immense burden on the economy at a time when there is real concern about a recession. Reducing BBR may help lower borrowers monthly repayments, but it won’t help increase the availability of funds to either borrowers or business, which is becoming a critical issue.

“What’s really needed is for interbank rates to fall closer to BBR. The Bank of England’s recent initiative to inject liquidity back into the markets by allowing banks to swap mortgages for UK Treasury Bills is a step in the right direction but, by itself, may not be enough. The MPC needs to explore other ways to reduce interbank rates to their former levels and give banks the confidence to start lending to each other once again.”

Capital Economics has recently downgraded its forecast for GDP growth from 1.7% to just 1% next year. It also believes that house prices will fall by 8% in 2008 and 10% in 2009 and says that interest rates could fall to 3.5% by the end of 2009. However, it does not believe the UK economy is heading for a recession at the moment.

Davies concludes: “The lack of funding is placing a stranglehold on British business. Ironically, small and medium sized businesses have been performing well recently because they are price competitive and efficient, but a lack of funding prevents them from making essential investment to maintain their competitive edge. Funding is the lifeblood of British business and the Bank of England needs to do everything within its power to ensure that companies are not starved of this essential resource.”