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News: Dont sacrifice a soft landing NAEA warns Bank

With expectations of an interest rate cut at some time in the first quarter of the year, the National Association of Estate Agents is advising the MPC against too quick a reduction of interest rates in early 2006.

NAEA believes cuts may raise the spectre of increased inflation and endanger the current soft landing in the property market.

Peter Bolton King, chief executive of the NAEA, says: "Although first time buyers and the retail market may hope for interest rates to be brought down at the beginning of 2006, it is now more vital than ever that the Bank of England’s Monetary Policy Committee gets its timing correct."

"A hasty rate drop runs the risk of encouraging people to spend money they do not have, which could easily draw us into a period of inflation. To counteract this, interest rates would then have to be raised, which would have a serious impact on the steady growth now predicted for the housing market."

Ongoing problems for first-time buyers and the retail sector should not distract the MPC, says Peter Bolton King. "Timing a rate rise incorrectly risks sacrificing a sizeable medium to long term problem for the minor benefits of a short term gain."

The next Bank of England MPC meeting is set for Wednesday and Thursday next week. Their decision will be issued at midday Thursday.

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