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Mortgage Strategy’s shadow Monetary Policy Committee is united in again voting to hold the base rate amid concerns about inflation
and troubles in the Eurozone


Mark Harris
Managing Director, Savills Private Finance

In comparison with much of Europe our eco-nomy appears to be in rude health. But it would be foolish to get carried away as the recovery, while under way, is fragile and a prolonged period of stability is required before we start cracking open the champagne. Inflationary pressure is likely to ease during 2011 and I expect interest rates to remain at their current level throughout next year. This is not good news for those mortgage brokers who are expecting the mortgage market to spring to life. But those that are fortunate enough to have access to the purchase market are much better placed to survive what will be another challenging year for us all. I vote for the base rate to be held this month.


John Cupis
Managing director, PMS

Inflation hawks will have seen the Bank of England governor Mervyn King continuing to write letters to the chancellor as inflation worries remain. Monetary Policy Committee members Andrew Sentance and Adam Posen have different views on the economy’s route to growth, with the former pushing for higher interest rates and the latter for more quantitative easing. The news from Ireland on its bailout will underpin worries in the Eurozone as its focus turns to Portugal and Spain. Like the unseasonal weather, global growth is patchy and regionalised. US data is mixed, while Germany powers ahead with 3.9% Q3 growth against 2009. The long haul to recovery continues and I vote for a hold.

Dev Malle
Sales director, Personal Touch Financial Services

The inflation nutters, as the MPC’s Adam Posen described them, must be thinking that October’s increase to 3.2% was the clearest indicator that interest rates should start to rise now. Of course, they will highlight that growth is now forecast to be stronger than originally thought and the impact of quantitative easing is still unknown. But house prices, which are not part of the inflation measure, continue to fall and wage inflation has been pinned back partly in anticipation of further increases in unemployment. I think inflation has been lifted artificially and this will be exaggerated further in January when VAT rises. Against a backdrop of a fragile economy it is too early to consider any increase so I vote for a hold.


David finlay
Intermediary business director, Barclays

A split has opened up in the MPC in recent months, but we expect policy to be unchanged in December. One member believes that the Bank should print more money to reduce the risk of deflation. Another favours an increase in the base rate because the high rate of inflation may lead people to question the MPC’s commitment to hitting the inflation target. The seven other members see merits in both arguments and are wary of moving policy in either direction until it becomes clearer which of these risks is the greater. We perceive little change in this situation since the November MPC meeting, so my vote is for quantitative easing to remain unchanged and the base rate to be held at 0.5%.

Ray Boulger
Senior technical manager, John Charcol

With the euro’s flaws so exposed how long can it survive on its current basis? What is even harder to predict is how such a massive problem will be resolved. As the Evening Standard pointed out last week, with Germany dictating terms for supporting each Eurozone country as the dominoes fall, German chancellor Angela Merkel has managed to achieve without bloodshed what Hitler failed to – domination of Europe.

Bailing out Greece did not stop the contagion and bailing out Ireland has made matters worse, with the problems spreading beyond sovereign debt to corporate debt. The worse the Eurozone problems get the greater the negative impact on our economy. I vote for a hold again.

Vic Jannels
Chairman, All Types of Mortgages

Consumer prices rose again in October due to higher energy prices and an increase in com-modities, causing the Bank governor to write to the chancellor. Public borrowing was weaker than expected in October. Reports indicate a rise in Corporation Tax and VAT receipts but a fall in Income Tax and Capital Gains Tax. While unemployment remains at the current level, it is hard to imagine the base rate being hiked. On the other hand, inflation will be above target until 2012, according to the latest MPC minutes, which might make it hard for members to agree on policy. Activity on the high street was better than expected in October but consumers buying before VAT rises may have boosted sales. I vote for another hold.

Mehrdad Yousefi

The Office for Budget Responsibility expects 330,000 public sector workers to lose their jobs over the next four years – far fewer than the 490,000 it forecast in its June report. It has also raised its estimate for growth this year, from 1.2% to 1.8%. In the meantime, the Bank reported 47,185 loans for house purchases in October, the lowest for eight months. House prices have been falling for the past few months as consumers remain cautious in the face of looming fiscal retrenchment. Real wage growth is in negative territory and unemployment remains high. The Irish fiscal challenges coupled with sluggish growth in the Eurozone will have an adverse impact on UK exports in the first half of next year. I vote for a hold.

Fahim Antoniades
Group director, Mortgage centre ifa

The UK’s foreign deficit exceeds that of Spain and other Eurozone areas. For this reason UK growth for 2011 is downcast, despite the stronger than expected Q2 and Q3 figures for 2010. Over 30% of the Eurozone has to address financial problems and the prospect for a Europe-wide fiscal consolidation and currency depreciation is real. We contributed to Ireland’s rescue and the latest is that Portugal may have to be next, with the UK playing a significant role again. Back home we still face a contraction in credit growth and a slowdown in mortgage lending, with the Bank facing a further the prospect of another round of quantitative easing in early 2011. I’m finding it hard to justify a rate rise so vote for a hold.

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

Once again the picture is mixed this month- growth in the economy was stronger than expected although questions have been raised over whether it can be sustained and estimates for 2011 have been revised downwards.

Partly because of the exchange rate, inflation has been stubbornly high, standing at over 3%. Next year’s increase in VAT and more pressure driven by import prices is likely to mean that it will remain elevated for another year or so.

There is clear tension inside the Monetary Policy Committee about what to do although the governor is very much in charge and seems committed to low interest rates for longer periods as the best way of underpinning recovery.

He may be right and many have benefited from this policy. I see no prospect of the Bank changing direction at the moment even though I think that we are storing up major problems ahead.


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