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Bank Of England Is Now Able to Act

13th May 2008 | back to article listings BACK    print this article PRINT

The Bank of England must not use the spike in inflation (to 3%) announced today as an excuse to hold back interest rate cuts again next month. Today’s hike is largely due to rising food prices and energy costs and the significant recent increases are now in the figures and we expect inflation to retreat later in the year. The bank also appears to expect this to happen according to its recent report last week where it stated it was likely to have to write a letter to the Chancellor and that inflation is likely to remain above target for much of the remainder of the year.

There are however much bigger issues at stake. With mortgage lending down 48% since the same time last year the property market is in serious danger of continuing to stagnate or even falling to some modest degree and the knock of confidence for consumers is already having dramatic effects on spending and upon the economy as a whole. The risks to the economy as a whole are much greater.

We strongly suggest the Bank of England now lowers base rates very quickly to 3.5% given that the increased profit margins for the banks mean that payable interest rates for the property owner, consumer and business will still be higher than before last summer. This should significantly protect against inflationary effects whilst producing windfall profits for the banks and not putting the country under economic pressure from such a sudden change upwards in payable interest costs.

This news story has come from the property investment blog by Stuart Law, CEO Assetz plc.

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