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Interest rate decision a 'step backwards'

Friday, 9 May 2008 9:34 AM

The Bank of England's interest rate decision represents a "step backwards" for the property industry, according to Townends.

Yesterday the Bank's monetary policy committee (MPC) decided to maintain the base rate of interest at five per cent.

This follows cuts of 0.25 per cent in December, February and April.

However, the estate agent argues the Bank his missed an opportunity.

"The housing market is in need of strong decisive actions and lender rates remain prohibitive to many who have a genuine need to buy or sell property," said

"Recent rate cuts in the main have not been reflected in headline lending rates which is increasing fiscal pressure on homeowners and having a knock on effect on the economy as a whole with retail spending significantly down."

Lenders have been accused of failing to pass on cuts in the base rate of interest, despite calls from the chancellor for them to do so.

Banks, however, take into account commercial considerations before those of the chancellor, and, with the London Interbank Offered Rate (Libor) remaining high, interest rates on mortgage products have not fallen.

In anticipation of a maintained rate, Townends surveyed informed members of the public to see if they felt a lower interest rate would have an affect on the market.

Research from Townends also finds 51 per cent of Brits felt a lower interest rate would have a positive impact on the market, with 11 per cent saying no and 20 per cent left sitting on the fence.

A further 18 per cent of participants answered that it would have an impact but only if the changes were passed on by lenders.

However, Spicerhaart points out the Bank's primary concern is to control inflation - not assist the housing market.

"The Bank of England was in a difficult situation today; to strike a balance between kick starting the economy and reigning in inflation," said Steve Cox, operations director of Spicerhaart Financial Services.

"The inflationary pressures have resulted in meagre cuts in the base rate this year."

Inflation is currently at 2.5 per cent, 0.5 per cent ahead of target.

Chris O'Toole

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