Fri, 09 Nov 07
The Bank of England has once again 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.
Investors ‘feeling the pinch’
David Austin, Managing Director of Property for Life, commented: The Monetary Policy Committee has held the base rate for four months now, but with inflation slightly below target and house price growth subdued, it is about time we saw a drop.
We believe that a quarter percent cut before Christmas is needed to boost consumer confidence and stimulate spending. Consumer debt and repossessions continue to rise and a further increase in interest rates would place unnecessary pressure on homeowners and investors.
Although investors are currently feeling the pinch, this has not reduced the desire to buy, with 76% of investors questioned for our confidence tracker still believing now is a good time to buy. The long term returns of an investment in property remain strong.
Stuart Law, Chief Executive of Assetz, warned that the Bank was ‘risking the economic stability of the UK’ by refusing to lower rates: It's about time that the Bank of England’s MPC saw sense and realised that the clear and present danger to the UK economy from the continuing effects of the credit crunch is more important than the less clear possibility of future pressures upwards on inflation.
David Bexon, Managing Director of SmartNewHomes.com, commented: Today’s decision to hold interest rates is an extremely short-sighted one at a time when confidence in the housing market is at an all-time low. Repossessions are set to rise next year and homeowners who have stretched their finances to buy at high prices on low, short-term mortgages, will suffer. There is still time next month for the MPC to reverse this decision and I urge them to do so.
Detrimental to the market
Robert Bryant-Pearson, Chief Executive of Allied Surveyors, believe the latest rate hold could be ‘detrimental to the market as a whole’: Given the current climate, I firmly believe that there should have been a reduction in rates this month. Fixed rate mortgages are coming to an end for many homeowners and first time buyers are continuing to drop out of the market and switch to renting instead as the market remains unsettled.
The MPC is clearly concerned about a rise in inflation, given the current spike in oil prices, but against the backdrop of the current credit squeeze I fear they have made the wrong decision today. The country needs a period of stability. We have already seen repossessions rising and this could be further amplified by a continuation of high interest rate mortgages.
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