Fri, 05 Oct 07
The Bank of England has voted to keep UK interest rates at 5.75%.....
Economists say the Bank is adopting a "wait-and-see" policy on rates until a clearer picture emerges of the effects of the recent global credit squeeze.
This is despite some calls for a rates cut to counter an expected slight economic slowdown in the UK next year. The Bank also kept rates on hold last month, but that was before the Northern Rock crisis emerged. The Newcastle-based lender had to secure emergency funds from the Bank after the downturn in the global credit market.
Ian McCafferty, CBI chief economic adviser commented: "An interest rate cut was unlikely this month as there are, as yet, few signs of any serious damage to the real economy from the upheaval in the money markets. What's not in doubt is that the next move will be down."
New buyers put off by ‘uncertainty’
David Bexon, Managing Director of SmartNewHomes.com, commented: Today’s decision to hold interest rates will not be well received by current home owners, some of whom are yet to be hit with higher payments as fixed rate deals end. This month, interest rates should have been reduced to restore confidence throughout the market as whole.
With a fall in the number of new mortgages taken out last month it is clear that new buyers are being put off by the current uncertainty. I urge the MPC to bring better news next month and vote for a cut.
Warren Bright, chief executive of property website propertyfinder.com observed: It is high time that base rate cuts came onto the MPC’s agenda. Turmoil in international credit markets has effectively been a rate hike by another name.
House price growth has been moderating for some time and confidence in the housing market has been dented. The MPC should now be cutting rates to prevent the housing market’s orderly slowdown becoming a disorderly rout.
Credit crunch 'panic'
Stuart Law, Chief Executive of Assetz, said It is disappointing that the Bank of England has sat on its hands once again. It should have learnt its lesson following its poor management of the recent Northern Rock situation: playing 'King Canute' with the markets is a lose-lose situation.
As we have been predicting for some time, rates have overshot justified levels and will soon have to start a downward movement. I expect we will see a rate of 5.25% by early 2008, down further to 5% by mid 2008. The recent credit-crunch and the associated panic has mainly been constrained to the banking industry, but is still likely to influence a decision to move rates into reverse next month.
However, the recent 'storm' has proved prosperous for property investors who are now experiencing significant rental demand and rent rises across most of the country due to homebuyer indecision. When the base rate does start to drop there will be a lot of very happy buy-to-let investors over the next couple of years!"
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