Housing industry calls for interest rate cut

Wednesday, 6 August 2008 12:00 AM

Housing industry insiders have issued their monthly call for a cut in interest rates as the Bank of England begins its two day meeting to decide its future policy.

Reporting tomorrow the Bank's monetary policy committee (MPC) will decide whether to cut, raise or hold the base rate of interest, with the property industry heavily in favour of a cut.

The National Association of Estate Agents (NAEA) is one of the industry's chief cheerleaders, with chief executive Peter Bolton King saying: "We believe a reduction in interest rates this week will provide a pivotal way for the government to help revitalise the current market place.

"Indeed, a cut in rates would play a major part in helping to stimulate consumer confidence at a time where individuals' self-assurance has taken a heavy hit."

The body - which operates as the residential sales arm of the National Federation of Property Professionals (NFOPP) - points to a sharp decline in transaction levels as evidence the market is in need of assistance.

Independent research from the Bank finds property sales fell 70 per cent in June when compared to a year ago - the lowest level recorded since the data began in 1993.

This slowdown could impact the wider economy if it continues claims Mr King, who says: "A positive housing market is essential for the overall economy.

"There remain strong economic factors in the country like high employment but confidence is a huge issue and only a significant move will restore that confidence and convince lenders and public alike - the Bank of England needs to reduce interest rates and take action fast encouraging buyers back into the housing market."

However, a cut seems unlikely, according to research from analysts New Star.

The 'MPC-ometer' - which attempts to second guess the voting intentions of committee members based on past minutes - suggests several members will join David Blanchflower in seeking a cut in rates this month, but will be outvoted by a slim majority in favour of no change.

"The forecast is more dovish than market expectations and reflects recent very weak economic news, which has counterbalanced adverse inflationary indicators," explains New Star's Simon Ward.

The Bank made a "difficult" decision in July, with the MPC split three ways on the future direction of rates - however rates are unlikely to change argues Global Insight analysts Howard Archer.

"We suspect that most MPC members are still firmly in "wait and see" mode and in no hurry to move interest rates, given the current major uncertainties surrounding both the medium-term inflation and growth outlooks," explained Mr Archer.

Chris O'Toole

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