Ever since the banks were bailed out, I was worried that the government could not resist micromanaging their way through this mess. The difference between the Libor - the rate that banks lend to each other - and the BOE base rate - the rate that the BOE lends at - cannot be clearer. Generally speaking, banks don’t borrow from the BOE but from each other, so the rate that they pay for credit is the Libor and not BOE base rate. Yet our government do not understand this and are embarking on a policy of interference and micromanagement. The 1.5% cave in is all the evidence we need:

It was a difficult meeting… Right at the start the chancellor’s people thrust unflattering newspaper headlines under the executives’ noses. We then had to make it quite clear that just because rates fall it does not mean we can afford to do the same with our products… The issue was unresolved.

Bankers do not care about headlines. They only care that their business is viable and sustainable. Admitted, there is sometimes a correlation between bad headlines and poor business performance, but this it is not the place of the government to point this out. But what is perhaps more worrying is that it is “treasury officials” that are pushing the banks into a very political corner. Civil servants should not be worried about the papers - why are they doing political dirty work? Does this not break the rules?