The UK’s FTSE 100 was down by just over 7% today on the back of fears that recession looms for most world economies with the DAX also down by just under 7% on the day closing at 4,861.

The fear is that despite government action to strengthen the financial system and support of the banking sector economies are still heading for a down turn – there is however a certain amount of profit taking too on the markets.

There is some good news on the horizon, borrowing costs are falling as there are signs that banks were becoming more willing to lend to each other. The cost of borrowing between banks, which is measured by London interbank offered rates or Libor, fell slightly on Wednesday. This should therefore allow for the base-rate cuts around the world and in the UK of 1/2 of one percent to filter through to businesses and home owners in the economy.

That being said the governments should be called upon to cut rates further and we invite peoples comments on this topic, as to whether you agree. Although inflation is running high, there are signs that this is easing and with the cost of commodities reducing, this will feed through to lower output costs and therefore reduce inflation.

The interest rate at which banks lend money to each other has soared overnight to record levels, according to British Bankers’ Association data.

The Libor rate for borrowing dollars overnight hit 6.87% – the highest for more than seven and a half years.

In normal conditions, the rate should be closer to the Bank of England base rate which is currently 5%.

The rise came despite huge cash injections by central banks after the rejection of the US bail-out plan.

Libor reflects how banks perceive the risk of borrowing money.

While central banks set official rates, Libor is seen to show the real rate of interest being used by the largest global firms to borrow from one another.

With banks still reluctant to lend to each other, it has been a key indication of the impact of the credit crunch.

Mortgage lenders in the UK have pointed to rises in Libor when increasing the costs of new deals, despite falls in the Bank of England’s base rate.

News reported by The BBC