Mortgage Strategy’s shadow Monetary Policy Committee votes to hold the base rate over concerns about the spending cuts and inflation, which is still sitting above the Bank’s target
Mark Harris managing Director, Savills Private Finance
The economic recovery remains finely balanced and following the recent Spending Review we need to remain calm and give everything time to settle down. Inflation is still a concern, but this is expected to fall below the headline target of 2% early next year. Interest rates are currently one of the only stable factors in many peoples lives and with so much uncertainty I expect to see them remain at this level for the foreseeable future. This will allow households to budget with some degree of confidence and hopefully avoid an unacceptable level of repossessions, which will only add to the problems the country faces. So this month I once again vote for the base rate to be held.
John Cupis managing director, PMS
There are signs that the Monetary Policy Committee is split on the outlook for inflation, which remains significantly above the Bank of England’s 2% target at 3.1%. The Bank’s forecast suggests that it will remain above target until 2012. Expectations of the timing and pace of monetary policy tightening have been pushed back markedly, amid concerns over the recovery and growing expectations that the MPC might restart its quantitative easing programme. The unattractive expectation of low growth and a sluggish recovery will give rise to calls for further policy intervention, which means even more quantitative easing. For these reasons I vote for a hold this month.
Dev Malle sales director, Personal Touch Financial Services
We now have a better understanding of where the chancellor’s spending cuts will impact, but we don’t know the full extent of it. Initial estimates suggest they will result in 500,000 public sector job cuts and this in turn will result in pressure on private sector jobs. On a positive note, the government does seem to have calmed the markets through stern action to attack the deficit. Growth is expected to undershoot initial predic-tions and some economists fear the deflation trap, which keeps the quantitative easing option alive. This fragility on growth means the risk and impact of a rate increase should not be considered in the foreseeable future, so I vote for a hold.
David Finlay intermediary business director, Barclays
With growth above trend and inflation above target, a loosening of monetary policy would be difficult to motivate and I think policy should be left unchanged. In recent weeks there has been increased speculation that the MPC might loosen monetary policy in November, increasing its stock of quantitative easing asset purchases from £200bn. And the US Federal Reserve is widely expected to extend quantitative easing when it meets this week. But in contrast to the US, UK growth has been stronger than expected, with the rise in gross domestic product in Q3 double that expected. Also, the MPC has noted that the near-term inflation outlook is stronger than it had previously supposed. I vote for a hold.
Ray Boulger senior technical manager, John Charcol
Despite being better than most economists’ predictions, the Q3 GDP figures were 0.4% down on the previous quarter. Furthermore, the initial GDP estimate by the Office for National Statistics nearly always gets revised later, sometimes upwards, sometimes downwards. Q4 GDP should benefit from consumers buying big ticket items before the VAT rise at the start of next year, but that will detract from Q1 GDP for 2011. Next year will also see the initial impact of the Spending Review, so how the economy performs in 2011 will be a major factor in deter-mining whether monetary policy needs to be eased further by more quantitative easing or can start to be tightened by increasing the base rate. I vote for a hold.
Vic Jannels chairman, All Types of Mortgages
Political and economic commentators seem to diverge over the outcome of the Spending Review, although it is likely to be some time before its full impact reaches the high street. If the reduction was intended to be 8% that leaves 92% still to spend. So far, investment markets have not meandered much, suggesting that the tenets of the review have been well received. Current mortgage rate structures are good for those on base rate trackers, although they may be vulnerable when rates start to rise. Conversely, it is not a good market for savers or pensioners who need higher rates to boost their income. It is difficult to see how the base rate can remain at this low level for long. But for now I vote for a hold.
Mehrdad Yousefi, Industry consultant
Subdued mortgage activity and little demand for unsecured credit are a reflection of household uncertainties about the impact of spending cuts on their finances. Demand for new mortgages remains low, despite more properties on the market and falling house prices. The supply of credit is deemed too tight for house-holds and small to medium enterprises. The dip in retail sales in September illustrates households’ caution about the labour market and wealth from housing. There is a need for the reconstruction of the whole banking system, which will certainly provide headwinds to the recovery. As a result, I expect no change in the base rate and little action on quantitative easing. I vote for a hold.
Fahim Antoniades group director, mortgage centre ifa
While a further round of quantitative easing is being talked about, the economy has surprised everyone by showing a Q3 jump ahead of expecta-tions. Four days after news that property sales fell again, we receive news that sales of £1m properties have more than doubled this year. Mixed news seems to be the norm and has been for a while, and it’s for this reason that we must still err on the side of caution. Given that the economy has yet to endure the impact of losing nearly 500,000 public sector jobs, as well as public sector spending cuts – which will inevitably impact the private sector – I believe the conditions are still too precarious to warrant a counter-inflationary move on rates. I vote for a hold.
Peter Williams Executive Director, Intermediary Mortgage Lenders Association, and chairman, Shadow MPC
In the aftermath of the Spending Review there remains a great deal of fog. This will only clear over the next few months as expenditure cuts work through and express themselves in cancelled contracts and job losses. It is evident from both the MPC and other commentators that we have diverging views on how the recovery will play out, not least the strength of private sector demand. What is happening in the economy is also reflected in housing, where we have a much weakened market increasingly overshadowed by what might emanate from the Mortgage Market Review.
With reduced confidence, a weak recovery and an under-performing housing market, the prospects don’t look great, especially at local and regional level. Like the miners in Chile, there will be more months of darkness before the light begins to shine through. I vote for a hold.