Commercial lending rates, like some domestic mortgage products, have not been reduced in line with bank base rates despite government pressure because of the increase in perceived risk.

Banks operate by having a margin between the price they pay to borrow money (often from small depositers but also, as in the case with Northern Rock, from the wholesale money markets)and the price they receive from borrowers.

However they also need to provide for the value of the loans that "go bad" out of this difference and this provision has been increased to reflect the current problems meaning that as base rate have fallen the banks have increased their margins to reflect this higher level of risk

So what is the answer? . . . . . . . . .

Government providing guarantees should help the banks lower rates (and more importantly re start lending) but it may take a while before interest rates fall for commercial borrowers - many experts are saying that it will be the summer of 2009 at the earliest before any significant increase in lending and decrease in interest rates begins to benefit comemercial borrowers.