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Shadow MPC

This month’s decision: -0.5%

Melanie Bien Director, Savills Private Finance Decision: -0.5%

Rapidly deteriorating economic signals are pointing towards a deep and prolonged recession. The Office for National Statistics revealed a worse than expected 1.5% fall in gross domestic product in Q4 2008 while unemployment is rising and the pound has slumped against the dollar and euro. The stock market has not done much better, reacting badly to the government’s latest bank bailout. On top of this, January’s 0.5% reduction in the base rate seemed to have little effect on mortgage rates. But swap rates continue to fall, which has led to some cheaper fixed deals. But there are no signs of a return to higher LTV deals, which will deter first-time buyers. Despite the base rate falling from 5% in September to 1.5% in January the Bank of England may need to cut rates again sooner rather than later to put a floor under the decline in the economy and kick-start the recovery. I vote for a 0.5% cut.

Vic Jannels Chairman, All Types of Mortgages Decision: Hold

At last the economy has officially been pronounced in recession. So what are the prospects for recovery? The signals are weak in the short term and while our financial welfare appears to be inextricably linked to that of the US, until the Obama magic begins to demonstrably work we are likely to remain in the doldrums. Roll on mid-2010. I do not believe another cut in the base rate now will stimulate the economy and it could even upset the delicate state of sterling as confidence continues to weaken. Nor do I feel that the level of interest rates is the issue at the moment. The problem is a mixture of the lack of credit availability and the difficulty of matching market needs to funders’ criteria. We desperately need a period of stability followed by growth, so I vote for hold this month.

Chris May Director, Vision Network Decision: -1%

Now the new leader of the so-called free world is in his job are we going to see the big changes that were promised? And how will we measure their effects? The facts are somewhat different from the propaganda and everything seems to point towards another phase of the credit crunch, with a second battering for the banking sector. Unfortunately, I believe things are going to get worse before they get better so more drastic measures will be needed to curb the financial meltdown. Although I believe interest rates will be cut again I don’t think this is the sole solution and some argue it is having a negative effect, with remortgage business being badly affected by consumer uncertainty. The government must do everything it can to address the problems in the money markets so I vote for a drop of 1%, but with further stimulus packages injected into the economy.

Dev Malle Sales director, Personal Touch Financial Services Decision: Hold

Despite the pressure of inflation moving downwards and seeming likely to remain beyond the Bank’s target, it is essential the market sees some stability and confidence. It is becoming tough for lenders to pass on base rate cuts as they try to encourage positive net receipts on savings. So the benefit of such a cut for home owners will be eroded. The £50bn Asset Purchase Facility given to banks is good news and needs to be used to ease movement in the funding markets. The Monetary Policy Committee needs to ensure its actions are interpreted in a positive way to stabilise sterling and boost consumer confidence, so I feel we should hold the base rate now to allow the effect of recent reductions to work through.

Ray Boulger Senior Technical Manager, John Charcol Decision: -0.5%

The Bank’s draft February Quarterly Inflation Report will be available to the MPC and as the UK and global economies have deteriorated further since the last one, this is likely to project an even weaker consumer prices picture than before. Despite the Treasury agreeing to implement Sir James Crosby’s recommendations it does not seem to understand the urgency of this and is delaying action until at least April. Increased availability of funding is more important than a further base rate cut but in view of the Treasury’s tardiness in implementing the Crosby recommendations a cut now would at least provide some stimulus. Enquiries from potential house buyers have increased in the past month, probably as a result of the big rate cuts towards the end of last year. Another modest cut should encourage this trend so I vote for a 0.5% cut, with the expectation that 1% will be the floor.

Peter Williams Executive Director, Intermediary Mortgage Lenders Association Decision: Hold

Given the number and scale of actions taken by the Bank and the government, there is a strong case for holding the base rate to allow recent changes to work through the economy. Recessionary pressures seem to be strengthening by the day while inflation has fallen and we have seen a significant weakening in the value of the pound. Finance costs are low by most standards and the problem in the housing market now is the supply of mortgage funds. Lower deposit rates have not helped. The market expectation is that there will be a further cut of 0.5% and I think the MPC might nudge rates down a by 0.25%. But I would vote for a hold this month to take stock and get away from end-of-year effects.

Jim Cunningham Economic consultant Decision: -0.5%

At last the heads of the Financial Services Authority and the Bank are starting to talk with authority about the nature and scale of the credit crunch. The regulator has a full understanding of banks’ assets and believes last autumn’s capital-raisings are sufficient to cover likely losses. But the governor of the Bank recognises that the restructuring of banks’ balance sheets will take a long time and will require further capital-raising down the line. The measures announced on January 19 should give support, with the government lending via the banks. But economic activity still looks set to be 5% to 7.5% lower at the end of this year than it was in the middle of 2008. This is profoundly worrying and points to the need for still lower interest rates as long as this does not lead to a collapse in the exchange rate. It all amounts to a big decline in living standards. I vote for a 0.5% rate cut.

Fahim Antoniades Director, Quantum Mortgage Brokers Decision: -0.5%

Unsurprisingly, latest GDP figures show we that are in recession. The picture is similar across the globe, with the world economy showing a sharp downturn. Given such a backdrop I believe a big cut is warranted and the main reason a 1% reduction was not voted for last month was to soften sterling’s fall. With no fiscal measures to speak of in play, the only tool used has been cutting interest rates. Now, with rates at an all-time low, there is a realisation that further cuts will not have the desired effect but at last the government has decided to tackle the root cause of the problem by insuring mortgage-backed securities. This type of fiscal measure is what’s needed but what its impact will be and how long it will take to feed through remains unknown. Until this becomes clear, I vote for a 0.5% cut.

Colin Shave Chief Executive, GE Money Home Lending, and Chairman, Shadow MPC Decision: -0.5%

The green shoots of recovery that optimists have been looking for are not yet in sight.

Last month’s base rate cut is yet to have any notable effect, with instability in the financial markets and a stream of bad news from the economy leaving UK plc shaken. Measures to shore up the economy are seemingly being introduced every week by the government, and it is likely that the success of these will determine the length and depth of the recession as much as the actions of monetary policy-makers. That said, a further base rate cut looks likely as the Bank seeks to use every stimulus at its disposal. Quantitative easing – effectively the printing of money – is also on the cards as the government takes further stakes in the nation’s economy and tries to fend off the prospect of deflation.

I vote for a 0.5% cut this month.

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