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Rate cut to bring 'feel good factor' back

6 February, 2008

After an 8-1 vote in favour of holding rates in January, there is clearly scope for a rate cut in February as the Monetary Policy Committe (MPC) looks to mitigate against current economic conditions.

Galliford Try Homes' managing director, Chris Coates is certain that a rate cut is the only way of pulling the industry back out of the doldrums.

“While the housing market is set for a recovery, an imminent rate cut is needed to increase consumer confidence and property sales.," he said.

"Overall demand for housing will continue to outstrip supply, especially in the South East. The general feeling is that interest rates are on their way down this year and by initiating a cut now, homebuyers and industry will move forward in 2008 with renewed confidence."

New Star’s Simon Ward agrees, although thinks it will be a close call: “My MPC-ometer forecasts an 'average interest rate decision' of -14 bp at this week’s MPC meeting. This is below the -12.5 bp threshold for action and suggests a 5-4 split in favour of a quarter-point cut.

"The story is that activity indicators are firmly in rate-cutting territory, but they are being offset by the highest household and business inflation expectations since the MPC's inception."

With the smart money being put on a rate cut, it will be crunch time at 12pm on Thursday to see if the MPC heeds the industry's call to action.