This month’s decision: hold

Mortgage Strategy’s shadow Monetary Policy Committee reckons that with fears of a double dip recession, the eurozone crisis and high inflation, raising interest rates is not an option this month

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Mark Harris
Chief Executive, SPF private finance
DECISION: HOLD

There remains little to be cheerful about and much to worry about. A second global financial crisis cannot be ruled out with increasing concern about the sustainability of the eurozone and the US economy. In the UK various data continue to paint a bleak picture, suggesting that we have some way to go before we can start talking about a true recovery. While it is unlikely we will see the Bank of England reduce interest rates I would not rule out a further round of quantitative easing to provide stimulus to aid a recovery. Until we start to see sustained growth, a more stable economic environment globally and the country safely on the road to recovery I will continue to vote for a hold.

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John Cupis
Managing Director, PMS
DECISION: HOLD

US manufacturing data and a continued slump in housing sales spooked equity markets as the potential for a US double dip recession looms. The old adage that if the US sneezes we all catch a cold is what is worrying global markets. Things are changing with the rise of economic power in China and the Far East. Our major trading partner is the eurozone and as a grouping we are lagging behind the world’s major economies. Europe is at a crossroads and either fiscally the monetary union gets closer or it breaks up. Either way, the longer it takes to sort, the longer we will see lower interest rates here to keep growth going and debt servicing costs down. So I vote for the base rate to be held this month.

Dev Malle
Sales Director, Personal Touch Financial Services
DECISION: HOLD

Last month I suggested that at a growth rate of 0.2% the economy could be described as stagnant. Last month’s MPC vote shift, whereby all nine members voted for a hold, reflected those concerns. We’ve also seen a turbulent stock market and fears over the debt crisis for many of our European partners. The lack of growth with worries about unemployment is managing to hold back wage inflation. Despite inflation sitting at 4.4% it has almost been sidelined to a secondary issue in the short term. But we should not forget it as it is putting pressure on households’ real incomes and could result in wage inflation demands causing an inflationary spiral. For now, the decision remains to hold and is unlikely to change for some time.

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David Finlay
Managing Director for mortgages, Barclays
DECISION: HOLD

Speculation surrounding what will happen to monetary policy continues in full swing but I expect no change in interest rates when the MPC meets this month. The monetary policy sands are shifting. At the August MPC meeting two members who had previously been pro an interest rate hike rescinded their votes for higher rates. And with growing question marks over the health of the global economy there have been more calls for the Bank to increase the money supply in an attempt to kick-start demand. However, with inflation still more than double the government’s 2% target, we expect no action from the MPC in September. I vote for interest rates to be held again.

Ray Boulger
Senior Technical Manager, John Charcol
The weak economy, low consumer confidence and a housing market marginally up this year 2% according to Nationwide and Halifax suggests gross domestic product will struggle to achieve even the reduced official forecasts for 2011. A double dip is also a major concern. The marked economic downturn in most other global markets will make a UK recovery even more difficult. This is reflected in the unprecedented fall in gilt yields over the last month. But heightened fears in the banking sector of the impending carnage from a eurozone sovereign debt default has resulted in Libor going in the opposite direction, with three-month Libor up by 0.06% to 0.89%. I vote for a hold.

Vic Jannels
Chairman, All Types of Mortgages
DECISION: HOLD

It is said the only certainly in life is change. Perhaps that is not currently true in terms of the Bank base rate although there are compelling reasons why it should change, not least for the millions of savers and pensioners relying on income from their investments. Banks are turning good profits but some are decimating staff numbers. Some high street retail businesses are suffering while others report strong growth. Lenders seem keen to lend yet struggle with restrictions making it difficult for them to agree on what appear sensible applications. But on the plus side the staycation mentality appears to have boosted activity during the holiday season in both new purchase and remortgage business. I vote for a hold again.

Mehrdad Yousefi
Industry Consultant

DECISION: HOLD
Manufacturing output contracted in August for the first time since May 2009. The British economy grew a mere 0.2% in Q2 and will remain muted for the remainder of year. There is a slight risk of a double dip globally. Nationwide said house prices fell by 0.6% in August, reversing a revised 0.3% rise in July, and is 0.4% lower than a year ago. A slowdown in key UK export markets, riots in major British cities and a stock market slump have darkened the outlook for the economy and triggered speculation the Bank may opt to pump in more money to support growth. All this means any momentum for higher rates has been stopped in its tracks by the wave of global uncertainty. I vote for no change in rates or quantitative easing.

Fahim Antoniades
Group Director, Mortgage Centre IFA
DECISION: HOLD

Controlling inflation fuelled by a credit bonanza and a growing economy is easy just raise interest rates. Controlling inflation during a credit drought and a recession isn’t they require different tools. Those in favour view higher costs of borrowing as the lesser of two evils. I would agree, but only in the context of a healthy economy. Right now, raising rates would take away what little spending power remains in the system, thus curbing inflation, by forcing people and businesses to lock down and weather the higher cost of borrowing. The side effects of such a blunt instrument could stagnate the economy and I argue lower rates and higher inflation is the lesser of two evils. I vote for a hold.

Peter Williams
Executive Director, Intermediary Mortgage Lenders Association, and chairman, Shadow MPC
DECISION: HOLD

The recent economic news has been more negative than positive, with the sense that fears of a new recession are the dominant concerns and that these rank above continuing inflation. At the last MPC meeting there was a change of heart from the minority of members who supported a rate rise and this will be sustained this month when the committee will again vote to continue at 0.5%.

The MPC also voted to maintain quantitative easing at £200bn. But with the Federal Reserve beginning to talk about a new round of easing this will no doubt trigger more debate here. Part of the problem in recent months is the lack of global alignment between central banks and there is a renewed pressure to offer a more coordinated stance. I vote for a hold.