Bank lending rate falls sharply

Libor: The world's most important number?

The interest rate at which banks lend money to each other has fallen, according to British Bankers' Association data.

The Libor rate for borrowing sterling for three months fell to 4.49% from 5.56% on Friday after the Bank of England rate cut was announced.

This rate has the most influence on new mortgage rates.

However, it is still well above the Bank of England base rate, which now stands at 3%.

"On the fifth floor of an imposing building in London's Canary Wharf, six people are putting together one of the world's most important numbers - the Libor rate"

The world's most important number?

The rate is now at the lowest level since the end of 2005 and the fall signals that strains in money markets are now easing.

But it has not recovered to pre-credit crunch levels when it was much closer to the Bank of England official rate.

Some of the biggest banks in the UK have been deprived of the finances they need for their day-to-day activities because of turmoil in money markets.

This has in turn forced the banks to withdraw some of their more generous products and cut back on the amounts that they lend to their customers.

Libor is fixed once a day and sets the rate of $360 trillion (£210 trillion) worth of financial products worldwide, ranging from mortgage rates to car loans.

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