Melanie Bien, Director, Savills Private Finance
The aggressive rate-cutting by the US Federal Reserve is unlikely to be mirrored by the Bank of England this month but a further 0.25% reduction looks certain. There is an urgent need to boost the money markets as injecting billions of pounds into the system has done little to address liquidity issues. Three-month LIBOR continues to edge upwards, reflecting a serious lack of available funds. This is pushing rates on new mortgages higher but even if the BoE cuts rates, there’s no guarantee that mortgage spreads will be reduced. Consumer confidence is weakening, while Nationwide reports that house prices fell for a fourth consecutive month in February. While interest rates need to fall further, there is the threat of rising inflation to consider so I vote for a 0.25 % cut.
Vic Jannels, chairman, All Types of Mortgages
Is the spectre of the early 1990s returning to haunt us? The Royal Institution of Chartered Surveyors’ latest housing market survey reports that 64% of surveyors are seeing falls in property prices – up from 54.7% in January. In the US the picture is even bleaker. A slight upturn in sales of previously owned properties induced the optimistic to call the bottom of the market. But subsequent falls in consumer confidence indices to levels not seen since the early 1990s – barring a brief period in 2003 at the outbreak of the Iraq conflict – indicate that US consumers believe the worst is yet to come. Meanwhile in the UK, the number of jobs is the highest since records began in 1959 at 31.62 million. Wage inflation has slipped to 3.7% but inflation remains above target at 2.5%. I vote for a cut of 0.25%.
Christopher May, Director, The Mortgage Times Group Decision: -0.25%
This month has seen more big lenders tightening their criteria and the collapse of the world’s fifth largest investment bank, Bear Stearns. Nationwide says house prices have fallen again and consumer confidence indicators point towards a recession. City analysts have touted a 60% chance of a rate cut this month and BoE governor Mervyn King has also suggested that the base rate needs to be brought down. But he has also said that inflation is expected to rise to 3% before falling back to its 2% target towards the end of the year. This reduces the probability of steep rate cuts as seen in the US in the near future. The risk of a pronounced economic slowdown outweighs that of an inflationary spiral so I vote for a cut of 0.25%.
Dev Malle, sales director, Personal Touch Financial Services Decision: -0.25%
While the BoE continues to balance the risk of accelerating inflation against vulnerable growth, it is clear that the former must be seen in the context of a slowing economy. The liquidity crisis is separate from the pressure on inflation from rising fuel and food prices but consumers are feeling the effect of falling house prices, the inability to remortgage and rising mortgage costs. This is bound to have a fundamental impact on growth and stability in the economy, which has remained resilient until now. Growth is better than analysts forecast but many think the bite of the economic downturn is yet to be felt as there is a lag due to the continuing strength of consumer spending which is surprising many. The BoE must act before this lag disappears and a reduction in the base rate would help. I vote for a 0.25% cut.
Ray Boulger, senior technical manager, John Charcol Decision: -0.25%
Conditions in the money markets have deteriorated significantly in the past month, as have the longer term growth prospects for the economy. Capital Economics is now forecasting GDP growth of only 1% in 2009. Weaker GDP next year will result in higher unemployment and reduced inflationary pressure. A rate cut now will have little effect on inflation in the next few months. Even if the consumer price index exceeds 3% in the short term, forcing King to write to the chancellor to explain why, Alistair Darling is unlikely to be too unhappy as an election must be called by spring 2010 and any rate cuts now are unlikely to be reversed before then. The question is not whether to cut but by how much and on balance I recommend a cut of 0.25% this month, followed by another in the near future.
Peter Williams, executive director, Intermediary Mortgage Lenders Association
Conditions in the economy are mixed, with some sectors weakening and others remaining relatively strong. Despite this variability, indices of consumer confidence continue to fall. The US economy is already close to or in recession and the authorities there have been reacting with interest rate cuts and other measures. There is also a strong case for another nudge here in terms of a cut in the base rate. Depending on the extent to which lenders pass it on, a cut might ease the pressure being felt by households through higher mortgage costs, reflecting higher borrowing costs. But the BoE must also try to reopen the markets and firm action in that area is even more important than a base rate cut. So I vote for a 0.25% cut but as part of a wider strategy.
Jim Cunningham, economist, Council of Mortgage Lenders
Liquidity problems have intensified and credit concerns have resurfaced, gumming up the interbank lending market. The ability of lenders to fund new lending has fallen below the demand for mortgages so they are tightening their criteria to balance supply and demand. But the big question is – will adjustments in the financial markets be contained or will they spill over to other sectors of the economy? So far, the wider economy has remained remarkably resilient but forward-looking indicators such as consumer confidence and investment expectations are flashing amber. With tightened lending criteria more than offsetting the effect of the last cut in the base rate, there are grounds for cutting the base rate by 0.5% this month but I vote for a more cautious 0.25% reduction.
Fahim Antoniades, director, Quantum Mortgage Brokers
The past month has seen an industry shake-up due to the liquidity crisis. Mortgages that would once have gone to the diminishing ranks of securitised lenders are now finding their way to balance sheet lenders that can afford to be picky and keep their margins high. The housing market depends on mortgages – if it’s hard to get mortgages, houses don’t sell. Meanwhile, those who do obtain mortgages pay more, meaning less disposable income in the economy. Whether this will produce downward pressure on inflation remains to be seen. For all the cries for rate cuts, we should remember that the liquidity crisis did not stem from interest rates so cutting them won’t necessarily help. But there is mounting evidence that the economy is slowing so I vote for a 0.25% cut.
Colin Shave, chief executive, GE Money Home Lending, and chairman, Shadow MPC
Retail sales rose in January and February following a decline in December. Despite this, the trend is likely to remain downwards, in line with falling consumer confidence. House price inflation continued to fall in February, with Nationwide reporting year-on-year inflation of 2.7% and Halifax 4.2%. Consumer price inflation rose further above target to 2.5%. It is likely to remain above target at least until the summer, moderating when the impact of the global economic slowdown sets in.
With liquidity problems resulting in tighter lending conditions and the BoE showing its intent by injecting more funds into the market, inflationary concerns should be set aside for the time being in favour of a base rate cut in April. This should help to stem further falls in the housing market. I vote for a cut of 0.25%.