Industry comments on Base Rate decision

Amanda Jarvis

February 10, 2006

RICS chief economist Milan Khatri said: “The Bank of England’s decision to leave interest rates unchanged today at 4.5% is the right decision for now.

After a slow 2005, the economy has shown increasing signs of picking up, as the service economy expands.

The recovery in the housing market since last summer has been maintained. The number of new buyers has risen for seven consecutive months, while the number of property sales has risen by 13 per cent over the past year. The more positive tone of the housing market has also bolstered spending on the high street.

However, the Bank of England should examine the need for a spring-time interest rate cut in the months ahead. A recent increase in unemployment could damage consumer confidence. The manufacturing sector also remains fragile and has failed to take advantage of a robust global economic climate, therefore inflation pressures in the economy as a whole remain quite muted.”

Mehrdad Yousefi, Head of Intermediary Mortgages at Alliance & Leicester said: “Today’s decision to maintain the base rate at 4.5% comes as no surprise.

There is renewed confidence in the economy as figures show retailers performed better than expected over the Christmas and new year holiday period. With this upbeat start to the year, the potential downside risk to economic forecasts is lower than previously anticipated.

“Many commentators point to the possibility of base rate cuts in the future and overall brokers, homeowners and first time buyers can look at this year in a positive light.

“Consumers can benefit from competitive products that are currently available — short term fixed rates are comfortably below the base rate. Those looking for a good value mortgage deal could save money by ensuring they shop around.”

Tracy Morshead, managing director of Principality Building Society, said: “As expected, the Monetary Policy Committee has left interest rates on hold for the sixth month running and is likely to be waiting for key economic indicators, such as the BoE quarterly inflation report due next week, before making its next move.

“The continued recovery in the housing market has underpinned its decision and evidence from Peter Alan, our estate agent subsidiary, points to a robustness in the Welsh housing market in December and January.

“However the high street is continuing to struggle with the British Retail Consortium reporting weak sales in January, despite a sharp improvement in consumer confidence.

“While there are so many contradictory indicators, the future is hard to predict. However, many experts predict that rising unemployment and increasing utility bills will take their toll on consumers who are still saddled with debts following the Christmas period, and the central bank will have to repeat its quarter-point August interest rate cut in the next few months.”

Dave Pearce, director of Torquil Clark Mortgages added: “The Bank of England’s decision to freeze interest rates at 4.5% comes as no surprise as recent house buying confidence has pointed to sustained recovery in the market. The predicted reduction in interest rates in the near future would be welcomed to ensure that the positive outlook in buying trends continues to build in momentum.”

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