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Shadow MPC

This month’s decision: Hold

Melanie Bien Director, Savills Private Finance Decision: Hold

The Monetary Policy Committee has come to the end of the rate-cutting road. With the base rate at 0.5%, there is little room left for manoeuvre so attention is now turning to the Asset Purchase Facility and other measures designed to boost the economy and encourage lenders to lend once more. The surprising increase in the Consumer Price Index in February – the target the Bank of England uses when setting interest rates – to an annual rate of 3.2% from 3% a month earlier will also make it harder for the MPC to justify a further rate cut at the present time. But the governor of the Bank of England, Mervyn King, wrote in his letter to Alistair Darling that the MPC expects the sharp decline in CPI since September’s peak to resume shortly, with energy prices tipped to fall further. For now, and perhaps for several months to come, it’s going to be a hold.

Vic Jannels Chairman, All Types of Mortgages Decision: Hold

It is too early to establish what effect, if any, the recent round of rate cuts have had on the economy, deflation, inflation and reflation. Am I alone in failing to understand the real meaning of quantitative easing? We await the outcome of the recent meeting of world financial leaders and these will have been subject to deliberations at last week’s G20 summit in London. Mortgage lending remains difficult and there does not appear to be any signs of this easing soon. Continued gloom is affecting the motor trade. Unemployment is rising above two million with many well known brands disappearing from our high streets. The cumulative sentiment is that we are in for the long haul before we see any real signs recovery. There appears to be little room or need for any further rate reduction. I vote for a hold.

Chris May Director, Vision Network Decision: -0.5%

Are we nearing the bottom of the market? I still say no. Unfortunately, as before I believe recent gains in the stock markets are inevitability going to be counter-balanced by larger drops. This is due to the market being superficially propped up by governments, and although I agree with the theory, it is also leaving us open to a massive national dept. My criticism of our current strategy is that banks have been bailed out but ordinary businesses are failing every day. Access to credit is the biggest issue for any business and the same banks that are receiving help are not distributing the funds around. This is leading to huge problems within the economy and consumer confidence, which in return has to be counter-balanced with superficial stimulus packages from the government. Because of this we will see a further drop in rates, even though inflation is still a big worry.

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

If there was any question that we had exhausted the manoeuvring room on the base rate by reducing it to the lowest level in its 315 year history, the increase in inflation in February from 3% to 3.2% has taken away any doubt and made it almost impossible for the rate to be reduced further. The steep fall in the value of the pound has clearly resulted in retailers passing on the impact to shoppers in terms of higher prices. We have had a number of national economic stimulus packages announced and we now need to see their implementation, which should boost consumer confidence. The international response to current problems is still unclear and much will depend on consensus at the G20 Summit.

Ray Boulger Senior technical manager, John Charcol Decision: Hold

A key consideration is the extent to which the balance of inflation risks has changed in view of the surprise increase in the Consumer Price Index for February. In particular, consideration needs to be given to the extent to which the main upside risk to inflation identified in the February Inflation Report – that there is greater pass-through of the exchange rate depreciation to inflation – is crystallising, or whether the CPI increase reflects other factors. Although sterling depreciation was undoubtedly partly responsible for the CPI increase, part of it also appears to be the result of many retailers increasing prices back to their level prior to the VAT cut. It seems probable that CPI will resume its downward path shortly and there is still a greater risk of CPI inflation breaching the 1% level on the downside than of increasing much beyond the current 3.2%. I vote for no change and for quantitative easing to continue.

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

There is no basis for further interest rate reductions and any cut would be unlikely to be felt by consumers, who are now seeing mortgage rates bottom out and the cost of many goods fall. Indeed, the Monetary Policy Committee has now shifted its focus to quantitative easing. In that sense the rate decision in the short term has moved to ‘on hold’. Obviously interest rates are not going to remain this low forever and expectations are that within two years they might be rising quite sharply as inflation returns to the stage. Right now we are into deflation and recession. On that basis my judgement would be that the MPC should keep rates on hold at its next meeting until the effects of the stimulus package are felt.

Jim Cunningham Economic consultant Decision: Hold

There is little point in cutting the Bank rate further. Deposit rates cannot fall much lower. If lending rates were cut, weaker lender profitability would reduce their capacity to lend. And not passing on a rate cut would provide no stimulus. The Monetary Policy Committee’s ‘quantitative easing’ – buying £75bn of private and public sector assets over three months financed by central bank money – attempts to provide a stimulus that bypasses the banks. It is too early to say whether it will work. On a positive note, the rate of contraction appears to have eased in some sectors over recent months, and the housing market is one of these. But I fear this is a false dawn. Two months ago I wrote that economic activity looked set to be 5% to 7.5% lower at the end of this year than in the middle of 2008. It still looks likely to be a long road to recovery.

Fahim Antoniades Director, Quantum Mortgage BrokersDecision: Hold

The upward acceleration of the Consumer Price Index from 3% to 3.2% in February came as a big shock. Perhaps it shouldn’t have been, since the alcohol, food and tobacco components of the index rose in real terms – due to weakness of the GBP exchange rate – to 11.5% year on year. The governor of the Bank of England also blames the weakness of sterling as the cause but expects a sharp decline in the coming months. Of course all this suggests the threat of deflation is coming on slower than anticipated and is likely to prompt the MPC to wait for further data. It will also want to see how quantitative easing affects bank lending. Add the expectation that mortgage lending rates have already bottomed out and there seems little point to cutting rates further. I vote for a hold.

Colin Shave Chief Executive, GE Money Home Lending, and chairman, Shadow MPC Decision: Hold

As we approach the end of the first quarter, the prospects for growth, employment, lending and financial markets remain weak. Even inflation, which most commentators expected to continue to move towards the 2% target, is under pressure from food prices and a weak currency. Most key indicators – unemployment, growth, house price indicators etc – are like to get worse before they improve. Over the past six months we have seen the launch of several government schemes to reinvigorate lending. The latest of these is the Bank of England’s quantitative easing programme, which came out of the blocks strongly. The hope is that funds released by these sellers will be invested in equities or deposited with banks that will lend to businesses and consumers. But the the programme has been undersubscribed, so it is still too early to know if this will work. What is more certain is that quantitative easing is the current focus of the Bank rather than interest rate cuts. Lending rates have come down and homeowners with variable deals will have benefited. Further cuts will have a minimal impact, which makes a move this month very unlikely. I vote a hold.


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