Cut price money
WE NOW have two prices for money one that the Chancellor and the Bank of England try to keep up, and another, set by supply and demand, which is lower. Follow- ing Abbey National's lead, more building societies are cutting their mortgage rates and putting the banks on the spot. The societies can do it because they are less dependent on the wholesale money mar- kets (where the Bank cracks the whip) and get more of their money directly from depositors. So they can cut their interest rates on both sides of the ledger, and now they have. Lending is their business, they are not doing much, so they are searching for a price that will clear the market and bring in demand to mop up their supply. The banks know the feeling. Last year, as their figures now show, ended dismally, with their business customers having actual- ly paid off £2 billion in nine months. They too would like to reach a market-clearing price for money. What the price of money in the High Streets is telling us is that the price of money in the City is too high kept there, for the moment, to help the exchange rate, but out of line with what is happening in the economy. Such disparities do not last, and I expect that the Chancel- lor will (at Budget-time?) follow the High Streets.
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