Assetz® News - Minutes confuse rate picture further for property investors

Minutes confuse rate picture further for property investors

23rd July 2008 |

Each month there is always a growing level of excitement in the run-up to the release of the Bank of England's interest rate minutes. You get the impression that economists huddle around the radio and hunt the internet for the first scraps of news. Buy-to-let investors, likewise, are keen to see what the Bank's monetary policy committee (MPC) has opted to do. Stick? Twist? Hold? Cut? One thing is for sure and that is the minutes are probably almost as vital as the interest rate decision announcement itself; clues can be gleaned as to the next possible direction the body will take.

But this month's minutes are going to baffle as much as lead industry insiders to make any stern conclusions. Seven of the MPC's members did as they were expected to do by onlookers - hold the rate at five per cent. Yet two other results confuse matters. David Blanchflower, being the dove at the Bank, tried to argue the case for a cut to 4.75 per cent. This was not entirely surprising. The real crux of the minutes came with the revelation that another individual, Timothy Besley, wanted a hike in the base rate to 5.25 per cent.

Whatever their reasoning, the Bank asserted that every one of the MPC members had a "difficult" challenge on their hands, because of confusing data. While there was higher than predicted inflation on one side of the spectrum, the slowing economy clouded matters on the other side, meaning a switch in either direction was hard, the organisation remarked. Capital Economics UK economist Vicky Redwood stated in response that it now looks virtually impossible that rates will be slashed in the next few months at least. "We still think that a rate rise will be avoided. But a rate cut before November at the earliest now looks even more unlikely," she commented, which might be good news for buy-to-let investors.

This was view matched by Investec's Philip Shaw, who said that the results are more "hawkish" then his outfit believed them to be. However, he added: "The outlook for interest rates look more uncertain. It's impossible to rule out a rate hike in August." James Knighley from IMG in turn stipulated that it is a "doubt" the base rate will be increased, citing the possibility that this could lead to a downward momentum. And chief UK economist at Global Insight Howard Archer contended that the members of the MPC are likely to sit on the fence for the time being and watch the markets with increasing intensity. "The three-way split in the MPC's voting in July encapsulates the predicament that the Bank of England is in over a deepening economic slowdown yet elevated and rising inflation," Mr Archer observed, merely backing up the prevailing paradox. Property investors ought to take note.

So, will Mr Blanchflower's lead be followed in the coming months? Or has Mr Besley begun a drift in the opposite direction? Answers are tough to establish, but future consumers prices index and manufacturing statistics will probably give more hints as to the path the MPC will tread next.