Melanie Bien Director, Savills Private Finance
While there has been little prospect of an interest rate rise for months, the chance of one has grown recently. Higher than expected inflation figures in March are the culprit, with inflation rising to 3.4% from 3% in February. The minutes of the April Monetary Policy Committee meeting showed concern on this subject which led to a spike in rate forecasts. The money markets responded, with one-year swaps in particular rising. This produced the first signs of volatility for some time, but inflationary pressure is expected to fall as weak demand and excess capacity come to the fore. This should keep interest rates low for some months and I vote for a hold
John Cupis, Managing director, PMS
Last month’s inflation figure showed a jump to 3.4%. Normally, this would trigger a decision to review interest rates upwards but circumstances are far from normal and I expect the MPC to cite slack capacity and expected risks to growth as reasons for not changing the Bank of England base rate this month. More sellers coming to the market will dampen house price expectations while concerns over Greek debt have weakened the euro against other currencies including sterling. Recent events have heightened the risk of a hung parliament but no clear view has emerged on the economic effect of this. We’re in for a long period of low interest rates and I vote for a hold.
Dev Malle sales director, Personal Touch Financial Services
Members of the MPC voiced concern over the level of inflation last month but the decision to hold rates confirmed that the committee’s brief has been unofficially extended beyond inflation control. This is just as well as inflation rose to 3.4% – beyond the 3.2% forecast of many economists. This was blamed on the cost of fuel and air fares. Meanwhile, it was revealed that Q1 2010 growth fell to 0.2% against the previous quarter’s 0.4%. This was less than forecast and confirmed the fragility of the recovery. Unemployment increased to 8%, the highest rate since 1994. So despite inflationary pressures, my decision is to vote for a hold for another month.
David Finlay, intermediary business director, Barclays
I see three reasons to suppose the MPC will resist tightening policy this month. First, inflation is being boosted bysome temporary factors – the hike in VAT, rising global energy prices, the effects of a weaker pound and second-hand car price inflation in response to the government’s scrappage scheme. Inflation is expected to fall back later in the year as these effects wane. Second, the recession has left spare capacity in the economy and this is expected to be disinflationary. Third, there is uncertainty about the strength of the recovery and the economy’s ability to cope with higher interest rates. All this leads me to vote for a hold.
Ray Boulger senior technical manager, John Charcol
Despite the Bank’s inflation report being published just two days after the MPC meeting it will be less important than usual this month, as the committee needs to know the new government’s fiscal policy before making any decisions. We are unlikely to have another budget until after the June MPC meeting so unless market turbulence forces its hand the base rate should be kept on hold and the quantitative easing programme left unchanged. The situation in Greece shows why the government needs to keep the market onside. The rise in inflation to 3.4% was disappointing but I expect it to fall below 2% later this year. I vote for a hold.
Vic Jannels, Chairman, All Types of Mortgages
Most predictions are for a hung parliament and as the MPC is delaying its decision by a week I should consider sitting on my hands. But with so much going on I need them to help me weigh up the conflicting signals sent out by all the economic information that is pouring forth. Inflation figures portend an increase in the base rate and the unemployment figures a reduction. The pound, while not in robust health, seems to be holding its own as the eurozone suffers, taking some of the heat of the UK’s credit rating anxieties. Whatever the result of the general election I vote for hold again this month to recognise the independence of the Bank.
Mehrdad Yousefi, Industry Consultant
Higher petrol prices will continue to feed through to consumer inflation, keeping it above 3%. But unless oil prices continue to rise these effects will fade in time. The value of sterling is one of the main reasons economists have been wrong about inflation. The UK economy faces unique problems within the G7 including fragile growth, high inflation and weak public finances. Meanwhile, the gross domestic product figure for Q1 2010 was 0.2% below consensus. Mortgage approvals for house purchase by the top six lenders rose to 52,000 in March and with the recovery unfolding gradually it is too early to start tightening policy. I vote for a hold.
Fahim Antoniades, Group director, Mortgage Centre ifa
With the Liberal Democrats seemingly growing in popularity the prospect of a hung parliament after the election looms. If this happens, according to the Centre for Economics and Business Research we could face a full-scale crisis. The consensus is that international investors would dump sterling over fears that a coalition would not be able to tackle the deficit, leading to higher import prices and a fall in the value of sterling. The CEBR’s prognosis is that base rate rises could be between 2% and 3.5%. This prospect, together with renewed interest in the property market, could see the end of the 0.5% era but for now I vote to keep things as they are.
Peter Williams, Executive Director, Intermediary Mortgage Lenders Association, and chairman, Shadow MPC
Clearly, the outcome of the general election will dominate policy although events in Europe are adding to the pressures on the UK government and the pound. With a modest recovery underway and the prospect of tax rises along with public expenditure cuts, the MPC has continued to favour a stimulatory stance. It’s hard to see this changing in the short term, although there is rising concern about inflation. The base rate has been 0.5% for more than a year, and this has underpinned the recovery. Deflationary pressures will feed into the economy in the next few months as the new government settles down to tackling the deficit so I vote for a hold.