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Shadow MPC: This month’s decision: hold

Melanie Bien, Director, Savills Private Finance Decision: Hold

There’s not much room left for the Monetary Policy Committee to manoeuvre with the Bank of England base rate at 1%. Indeed, further cuts in interest rates at this stage may have an adverse impact on the economy as savings rates are already unattractively low. If they were to fall further there would be even less incentive for savers to deposit their money, restricting the cash available to banks and building societies to lend. With five rate cuts in as many months and the MPC revealing in the minutes of its last meeting that its inflation target is unlikely to be met solely by cutting the base rate, this is a good time for it to pause for thought. Hopes now rest on quantitative easing, with the Bank writing to the Treasury to ask permission to print cash to increase money supply. The MPC believes this would give it a tool to limit the downward pressure on demand resulting from the financial crisis. I vote for a hold.

Vic Jannels, Chairman, All Types of Mortgages Decision: Hold

A week is a long time in politics and waiting for positives following recent rate cuts is as exciting as watching paint dry. Northern Rock’s pronouncements, while welcome, have yet to deliver tangible results and a lot could happen between now and then. The quickening pace of economic deterioration points to yet another reduction in the base rate but the villain of the piece is not the price of credit, rather its lack of availability because of the diminished appetite of those in a position to lend. Is it a case of ‘can lend, won’t lend’ for some lenders? We need to see a steady hand on the tiller linked to a cohesive strategy to restore confidence in the market. The balance between depositors and borrowers is crucial and both are in a parlous state. I vote for a hold this month.

Chris May, Director, Vision Network Decision: -0.75%

As I write, the London Stock Exchange’s FTSE 100 index is way below the 4,000 mark as global markets are battered once again by the news that several governments may have to pour yet more money into their financial institutions. There are rumours that US insurer AIG is well on its way to nationalisation, putting the spotlight on other insurers both here and across the water. The upshot has been massive share devaluations, with some of our most trusted brands losing billions. Against this backdrop, mortgage lending is down by 60% compared with last year and the UK is in a deeper recession than the rest of the industrialised world. I believe the Bank will cut the base rate by 0.75% to 0.25% as it looks to stabilise the economy. It’s all doom and gloom but at least I believe we are nearing the bottom. I vote for a 0.75% cut in the base rate this month.

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

It is now clear that the last base rate cut did little to boost consumer confidence and demand. But inflation saw a less than expected fall to 3% as a result of heartening retail performance, mainly due to the January sales. While we know there will be further downward pressure on inflation with the oil price having fallen from $150 at its peak to just $40, we have seen interest rates cut from 5% to 1% in just five months. An even lower base rate may have negative consequences, particularly for the strength of sterling. I believe the base rate should be held and the measures the Treasury has already announced should be given a chance to work. This could have a stabilising effect and even send a positive message to consumers. I vote for a hold.

Ray Boulger, Senior technical manager, John Charcol Decision: Hold

The minutes of February’s MPC meeting imply that despite a further cut being needed to a base rate that was then 1.5%, the committee was unlikely to rely solely on base rate cuts to meet its inflation target. Concern was expressed about the impact on banks’ profitability of cutting the rate to below 1% and there was some discussion about other ways the MPC could influence the economy, such as by quantitative easing. Particular consideration was given to what types of assets the Bank should buy. The starting point for this month’s judgement should be that more stimulus is needed. The question is whether this should be delivered by another rate cut, rolling out the quantitative easing programme or a combination of the two. I believe we should hold the base rate and begin quantitative easing, assessing the results of this before considering another rate cut. I vote for a hold.

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

Continuing bad news about the economy points to the need for the authorities to carry on taking action and we can expect more announcements both before and in the Budget, scheduled for April 22. With the base rate having been reduced to 1% it is clear that the Bank has been trying to address the economic situation, although many would argue it has been rather late in acting. The Bank is focussing on getting cash back into the economy by buying assets including government gilts. We need to let the effects of the recent rate cuts and other measures feed through. There is no quick fix for the situation we are in and there’s a good case for leaving the the base rate at its present historic low, so I vote for a hold this month.

Jim Cunningham Economic consultant Decision: -0.5%

The Bank projects that lower commodity prices, the weak exchange rate, sharp cuts in the base rate, the government’s fiscal stimulus package and the five-point banking and credit support plan will produce a weak recovery in the second half of this year and stronger growth in 2010. I think this view is too optimistic. Although we may be at the end of the beginning of the credit crunch, bank balance sheet restructuring will continue to weigh heavily on the economy. I believe interest rates should be cut again this month but am mindful that a low base rate may do more harm than good. Savers have been savaged and lower rates will see more funds exit banks and building societies and squeeze margins, further constraining the availability of credit. It’s time for quantitative easing to provide additional support to the economy. I vote for a 0.5% cut in the base rate.

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

The MPC’s last minutes showed it was concerned about a base rate cut doing more harm than good. Banks’ profit margins rely on the spread between deposit and lending rates so if deposit rates hit rock bottom and lending rates continue to fall, margins will be squeezed. Lending rates should not be allowed to fall much further. Nevertheless, the MPC came to a unanimous decision to cut, meaning fending off deflation and depression were of greater concern. The financial services sector is wounded but attention must also be paid to other sectors of the economy such as exports. This is where a falling pound could help. Quantitative easing to help with the purchasing of assets would devalue sterling and help exports, thus stimulating inflation. I vote for a 0.5% cut.

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

Interest rates are no longer the primary focus for most economic commentators. Last month we saw the first indications that the Bank of England was considering so-called quantitative easing – printing money. Talks are said to be underway between the Bank and the Treasury to develop a scheme that will allow the printing of money to buy corporate and government debt.

Successive cuts to the base rate have failed to stimulate the economy and the outlook remains uncertain, with volatile financial markets and many companies hit by low demand. Interest rates are said to be bottoming out but access to loans remains limited. The Bank is hoping that its quantitative easing programme will be the solution to the lending drought. But the MPC will no doubt be tempted to make a further cut. With rates near zero when new money enters the system, hopefully this will stimulate new lending activity. I vote for a 0.5% cut this month.

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