This month’s decision: hold

With inflation on the up and growth still weak, raising the base rate this month could do more harm than good, according to Mortgage Strategy’s Monetary Policy Committee

Melanie Bien Director, Savills Private Finance

Bank of England governor Mervyn King was forced to write to chancellor Alistair Darling again as January’s inflation figure edged more than 1% above the 2% target. In his letter King stressed that while the quantitative easing programme has been put on hold it will be reactivated if necessary. Economic activity is improving but still weak. The good news is that the labour market is stabilising and there is evidence of a pick-up in business and consumer confidence. Although new mortgage approvals fell sharply in January, this was down to the end of the Stamp Duty holiday and poor weather. I vote for a hold.

Peter Williams Executive Director, Intermediary Mortgage Lenders Association

Although there is a good case for waiting to see what happens as the effects of quantitative easing and its cessation work through the economy, we must be aware of the consequences of a continuing low base rate. We have a serious funding problem in the mortgage market and a phased but steady upward move in rates would ease this somewhat, shifting households closer to a normal situation. There are risks in doing this but we have to balance the consequences of a continuing shortage of debt finance against the risk of slightly higher interest rates. I vote for a 0.25% rise.


JOHN CUPIS, Managing director, PMS

It’s been a month of mixed messages, with world attention turning from corporate to sovereign debt. The Greek economy is in trouble and the bailout of at least one country in the eurozone can’t be ruled out. This sends a message of instability and poor economic performance to the currency markets. On the other hand the UK house purchase market is showing signs of recovery, with estate agents reporting strong interest so far this year. But we don’t want to see this become another housing boom as this would put upward pressure on interest rates which could be damaging in the longer run. I vote for a hold.

Dev Malle, Sales director, Personal Touch Financial Services

It has been widely reported that the increase in inflation to 3.5% can be pinned on VAT moving back up to 17.5% in January. But there was also an increase in oil prices – partly due to high demand for fuel in the icy winter months – and house prices are also on the up. All these factors point towards a short-term spike in inflation but I believe it will settle down by the middle of the year. So with low economic growth, tax increases in prospect after the election and a further rise in unemployment expected, the risk of inflation getting out of control remains relatively low. I vote for another hold this month.

Ray Boulger, Senior technical manager, John Charcol

There has been a substantial increase in the Consumer Price Index and an even bigger hike in the Retail Prices Index. Despite the fact that inflation is expected to rise even more in the next few months it should fall below the target 2% next year, even without an interest rate rise. We need a period without quantitative easing and low VAT to see how the economy copes. Public spending cuts are necessary now but are unlikely to be implemented until after the election. This will have a significant effect on the economy. Putting the base rate up now could easily precipitate a double dip recession so I vote for a hold.

Vic Jannels, Chairman, All Types of Mortgages

Inflation continues to rise while sterling is struggling against the euro and meandering against the dollar. Meanwhile, unemployment is still on the up and fuel costs have soared, showing no sign of falling back. A number of lenders have increased their SVRs and others may soon follow suit. The government is under fire from all sides yet seems to believe it’s a good idea to borrow your way out of financial difficulty. With an election looming and Council Tax and other tax increases likely it’s difficult to see how a rise in the base rate could be anything other than damaging at the moment. I vote for a hold.

Mehrdad Yousefi, Industry consultant

The Bank may have to restart its asset-buying programme if the economic outlook worsens but I doubt it will make any purchases in March. Given the nature of the economic recovery we are experiencing it will be at least June or July before we can judge how robust it is. Against this backdrop the Bank is far from relaxed about inflation running so far above its 2% target and is already alert to upside risks. For example, policy makers could be wrong about the inflationary effect of the fall in the value of sterling or the amount of spare capacity in the economy, while commodity prices could yet take off sharply. I vote for a hold.

Fahim Antoniades group director, mortgage centre ifa

Rightmove says house prices in England and Wales rose by 3.2% in recent weeks – the biggest increase since April 2007. But I believe the pace of house price increases will slow in the coming moths due to lack of mortgage credit and restrictive lending criteria. Recent inflation figures also show a marked hike. The consensus is that VAT reverting to 17.5% was largely responsible for this although a significant contributory factor is likely to have been the rising cost of imported goods such as food and fuel. I expect increases in both the CPI and house prices to slow over the year so I vote for a hold.

Colin Shave, Chirf executive, GE Money Home Lending, and chairman, Shadow MPC

Inflation hit 3.5% in January as the effect of the quantitative easing programme and VAT returning to 17.5% filtered through. Some analysts have suggested that a decision on whether to restart quantitative easing will be put off until after the election at which time fiscal policy should become more clear. In the meantime, policy makers must be hoping the international focus remains on Greece and the other so-called PIGS countries – Portugal, Ireland, Greece and Spain – rather than the UK. The recovery remains fragile, with growth in the manufacturing and service sectors weaker than predicted. This means the scope for a base rate change is limited so it’s a hold from me this month.
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