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THIS MONTH’S DECISION: HOLD

With a mixed economic picture and uncertainty about the general election, it is too soon to raise the base rate, according to Mortgage Strategy’s Monetary Policy Committee

Melanie Bien Director, Savills Private Finance
Decision: Hold

With Bank of England lending figures falling in February for the third consecutive month, and Halifax and Nationwide house prices also heading downwards, the recovery in the housing market is slowing. Economic and political uncertainty seem to be causing buyers to put purchasing property on hold. There was some cheer, as inflation fell to 3% in February. The fall in the consumer prices index will revive hopes that inflation has peaked and will drop below the 2% target by the end of this year. This is good news for those on variable rate mortgages as the base is likely to remain at 0.5% in coming months. I vote for a hold.

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John Cupis, Managing director, PMS
Decision: Hold

A mixed economic picture continued in March. All eyes are firmly fixed on the expected May general election after a lacklustre Budget. With unemployment expected to rise when a new government starts addressing our budget deficit, we should expect inflationary concerns to be muted, with all the slack in the labour market and manufacturing capacity at low levels. The trick will be to cut costs enough, but not too much to stifle demand. The chancellor predicted growth of gross domestic product at 3.25% in 2011, which looks ambitious. We could be in for a long road of low interest rates. I vote for a hold.

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

In my last decision, I suggested the increase in inflation was artificially stimulated and a short-term blip. What I didn’t anticipate was that the fall would be as quick as it has been, moving in February to 3% from 3.5%. The MPC remit to focus on prices alone is dangerous when looking to bolster business and confidence. A more appropriate approach would be that adopted by the Federal Reserve, which requires the Central Bank to promote employment and economic activity as well. The reduction in unemployment is going to be short-lived, and we are likely to see an increasing tax burden. I vote for a hold.

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David finlay, Intermediary business director, Barclays
Decision: Hold

Barclays Capital says the level of the Bank’s asset purchases under quantitative easing policy will remain at £200bn. The policy rate is the lowest in the Bank’s history and £200bn is equivalent to an injection of about 14% of GDP, a staggering figure. The pound has fallen by more than a quarter against our main trading partners, adding stimulus to the economy. With the economy having emerged from recession in Q4 the Monetary Policy Committee may soon turn its mind to reducing this support. But with economic data patchy and the general election looming, there will be no base rate surprises this month. I vote for a hold.

Ray Boulger senior technical manager, John Charcol
Decision: Hold

There continues to be no reason to change the base rate or reintroduce quantitative easing. February’s fall in the CPI to 3% brings it back into the target range and the expectation is that it will fall further later this year, with a strong possibility of undershooting the 2% target. Despite the February mortgage approval and lending figures continuing to be subdued, the impact of the Stamp Duty changes will be positive for house prices. With barely two months before the election which is likely to return a more fiscally prudent government, current indications are that a low base rate will be appropriate for a considerable time. I vote for a hold.

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

Unemployment dropped to 7.8% of the labour force in January. The net level of public sector borrowing increased to its highest level on record in February although it was less than many analysts had predicted. The pound remains under pressure, and this could increase pressure on inflation. The Budget has helped improve consumer confidence. The spectre of escalating oil prices will dramatically affect fuel pump prices in coming weeks, it is predicted. The higher Stamp Duty threshold is reputed to affect only up to 100,000 people and may not be enough to stimulate the housing market on its own. I vote for a hold.

Mehrdad Yousefi, Industry consultant
Decision: Hold

Mortgage approvals slipped to their lowest level in nine months in February in another sign that the housing market recovery has hit a plateau. But overall mortgage and consumer lending accelerated in February and the government’s Stamp Duty reform for first-time buyers leaves open the possibility of a further rise in house prices. Revised Q4 output figures at 0.4% suggests there is some underlying momentum to the recovery. So despite factors weighing down on output in the first few months of the year, the economy continues to expand, but it requires a large degree of policy accommodation to gain traction. I vote for a hold.

Fahim Antoniades, Group director, mortgage centre ifa
Decision: Hold

January’s 3.5% rate of inflation tapered to 3% in February. This is a large reduction, but nevertheless over the Bank’s 2% target. But January’s spike was due to the reversal in VAT back to 17%. When you strip out external factors such as energy prices, core inflation is lower. With consumption being hit due to higher taxes by the end of Q4 2009, my view is that the figure will be less than 2%. For now, the prospect of a hung parliament after the general election, together with confusion over how the two political parties plan to reduce the national debt, means that I vote to keep the base rate on hold.

Peter Williams
Executive Director, Intermediary Mortgage Lenders Association, and chairman, Shadow MPC
Decision: Hold

Despite the underlying uncertainties, we can expect the Bank to hold its position on both the base rate and quantitative easing. There are debates to be had about inflation and other pressures within the economy and big, unresolved issues about capital and liquidity more widely.

But the balance is in favour of standstill – not least until we get through the general election. There is growing confidence that the UK has got through the worst, and though there will be problems ahead the momentum of recovery is growing. Going forward, discussions are taking place about macro-economic controls designed to head off asset bubbles. It is suggested that we will need to broaden the brief to reflect this. I suspect this bigger-picture view is one that people will welcome. I vote for a hold.

 

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