|
[back]
[print]
[forward to friend]
|
| Inflation deflates rate expectations |
 |
| By Assetz UK |
|
Inflation is something that attacks affordability. At the moment, consumers are finding in particular that food and fuel is less affordable. Charged with the task of keeping price rises under control, the Bank of England's monetary policy committee (MPC) has been somewhat hamstrung of late.
With the consumer prices index (CPI) rate of inflation leaping from 2.5 per cent to three per cent last month and a less than optimistic quarterly inflation report, it may have come as little surprise that the MPC chose to hold the base rate at five per cent, dashing the hopes of those hoping for a boost to the property market through a reduction in the rate. This must certainly have been the case among most of the economists interviewed about the decision by Reuters last week, with just two out of 71 tipping a reduction.
As it happens, the future outlook is still seen as a little brighter. While Reuters noted that the outlook differed from the widespread expectation of multiple cuts over the summer months, it is perhaps at least worth noting that 40 of the economists anticipate a trimming of the rate by September.
Those investing in property may regard this as not really enough. Others will suggest that any persistence of higher rates will lead to a much larger downturn in the market. Knight Frank, giving its response to the decision, suggested that this year will see a five per cent fall in prices with rate cuts and a double-figure fall without.
Others, however, will look elsewhere for a boost to the market. Among those already thinking in such a fashion is the National Association of Estate Agents. Prior to the MPC meeting its chief executive Peter Bolton King suggested that "what is clear is that interest rates are dislocated from the situation and that the banks are not passing on any interest rate benefits to customers".
Instead, he suggested, the chancellor should "give people a break such as a stamp duty holiday for first time buyers and temporary tax relief on the mortgage interest of people's primary residence", something he thought would help boost confidence in the market.
A similar view was suggested by Nicholas Leeming, major client director of housing portal property finder.com, who said mortgage interest rates were "redundant to the cost of loans" due to high Libor rates and that the best thing the Bank can actually do is " take immediate steps to free up liquidity in capital markets, encouraging increased mortgage lending".
It is now more than a month since the Bank launched its Special Liquidity scheme with £50 billion of bonds. While it did state that the move would take time to have an effect, so far interbank lending rates have moved little. Having said in the announcement of the scheme on April 21st that the £50 billion was what it would "initially cost" - suggesting more money could be available - it may be that the Bank is tempted to take further action along these lines soon. This may ultimately do more to loosen the purse strings and get the market
moving again that any rate cut. |
|
|
|
About the author:
Jim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property.
Article Source: http://www.Free-Articles-Zone.com |
|
|
[back]
[print]
[forward to friend]
|
|
