THIS MONTH’S DECISION: HOLD

1 February 2010

Melanie Bien, Director, Savills Private Finance
DECISION: HOLD
The December inflation figures - with the CPI jumping to 2.9% from 1.9% in November - caused some commentators to conclude that interest rates would need to rise sooner rather than later to keep inflation in check. But Monetary Policy Committee minutes reveal that a spike in inflation was expected. Indeed, while swap rates rose on the news, they have since fallen back. Quantitative easing could be put on hold next month but concerns over economic growth and unemployment continue. The UK may technically be out of recession but the MPC is unlikely to be complacent. For now though it’s a hold.

 

Peter williams, Executive Director, Intermediary Mortgage Lenders Association
DECISION: HOLD
The grounds for increasing rates are growing not least because it would help ensure stronger flows of funds into the market and strengthen investor appetite. Offset against this is the recognition that low rates have underpinned the recovery along with quantitative easing and much else. Households that might have faced arrears and even repossession have avoided that fate because of low rates. The expectation is that rates will go up later this year but my feeling is they should move earlier. For this month the Bank will hold on rates and effectively cease using QE and that makes sense. We are on the turn.

 

John Cupis, Managing director of PMS
DECISION: HOLD
Longer term interest rates have nudged up, oil prices are up, US house prices have risen for six months in a row, the pound has nudged up against major currencies by a few points, stock markets are up, and official statistics show we are technically out of recession with a 0.1% positive growth in GDP last quarter. But we need to turn attention to political events in the run up to the election now likely in May. A bumpy ride is ahead and we need to assume any new government will cut public spending and raise taxes, keeping a check on consumption and more unemployment to come. With this backdrop I see no rate rise in the near future.

 

Dev Malle, Sales director, Personal Touch Financial Services
DECISION: HOLD
It is worrying that so many were alarmed by the rise in inflation up to 2.9%. We knew that the increase in oil prices would have an effect and the restoration of VAT to 17.5% was always going to raise prices. While it seems inevitable that inflation will pierce the 3% ceiling, one would not expect the chancellor to get over-excited. Wage inflation has been pinned back and with a general election looming, it is clear we are in store for tight control on public spending, including tax increases. We will also see a continued increase in unemployment, all of which will curb inflationary pressure. The decision is therefore to hold.

 

Ray Boulger, Senior technical manager, John Charcol
DECISION: HOLD
Despite the big increase in December’s Consumer Price Index and even larger increase in the Retail Price Index, and notwithstanding that inflation will increase in the next few months, it is expected to start to fall in the second half of the year and slip below % next year, even without an interest rate increase. We need a period without quantitative easing, car scrappage and lower VAT rate to assess the economy’s performance. The needed public spending cuts expected after the election will have a negative impact, as will the resulting redundancies. Putting the base rate up now could precipitate a double dip and so I vote for no change.

Vic Jannels, Chairman, All Types of Mortgages
DECISION: HOLD
The Consumer Price Index recorded its biggest jump since records began in 1997. The Retail Price Index is estimated to have risen sharply from 2.1% in November to 2.4% in December. Government figures suggest that the sharp increase is largely due to energy price rises. Some building society variable rates are rising and this could kick-start a remortgage stampede, as fixed rate increases are sure to follow.

Redundancy figures fell in December. The Citizens Advice Bureau reported 9,300 debt counselling enquiries per day and that one person was made bankrupt every 3.72 minutes. A rate rise will not help. I vote for hold.

Mehrdad Yousefi, Industry consultant
DECISION: HOLD
The Q4 GDP figures are a major blow to hopes that the UK economy had emerged decisively from recession in Q1. With household incomes under pressure, credit in short supply and a fiscal squeeze looming, the path to a full recovery looks set to be long and bumpy. This scenario reinforces my belief that we should keep rates at 0.5%. Although consumer price inflation is likely to temporarily spike up to over 3% in the early part of this year, any increases in interest rates are likely to be limited. I believe the Bank will suspend quantitative easing in February and will only increase it if the economy suffers a major setback.

 

Fahim Antoniades group director, mortgage centre ifa
DECISION: HOLD
A Reuters poll of 35 City economists showed they all believed the recession would end by Q4 of 2009. A further sign of potential recovery is an increase in the much-beleaguered manufacturing sector, which in January grew for the first time in two years.

But this is more a reflection of the 25% decline in sterling boosting exports than the state of the domestic sector, where retail figures have been slower than anticipated. Despite the increase in inflation towards the end of the year, when you strip out external inflationary pressures such as energy, core inflation has remained quite stable at 1.9%. I therefore vote for a hold.

COLIN SHAVE
Chief executive, GE Money Home Lending, And Chairman, Shadow MPC
DECISION: HOLD

The recession is over, for the time being at least and we’ve had other positive news with unemployment falling, borrowers paying off debts at record rates and loan defaults lower than anticipated. But most commentators are predicting a flat year for economic growth and, with wage growth close to record lows, consumer confidence is unlikely to be high. Politicians are gearing up for an election where the focus will be on reducing the budget deficit. Over the past 10 years, much of the country’s growth has been driven by state spending and this stimulus will be withdrawn. Much of the recovery has been driven by low interest rates putting cash into people’s pockets. With the economy in a fragile state we do not want to act too soon and it’s unlikely we’ll see movement away from 0.5% for some time.

If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat