Assetz® News - Certainty and uncertainty

Certainty and uncertainty

7th August 2008 |

The decision came today with neither fanfare or surprise. As predicted by all seven experts contacted by Adfero, all 38 polled by Bloomberg and all 76 interviewed by Reuters, the Bank of England announced at noon that the monetary policy committee (MPC) had voted to hold the base rate at five per cent.

It was the fourth successive month that the MPC had voted this way since the last cut in April, when the rate was reduced from 5.25 per cent to five per cent. Last month only two members of the MPC dissented from the majority, Tim Besley who wanted to raise the rate and David Blanchflower who, as usual, desired a cut. How each member of the MPC voted will become clear when the minutes come out on August 20th.

For some, the glass was half full, rather than half empty. This was the line taken by director general of the Council of Mortgage Lenders Michael Coogan, who, referring to Tim Besley's approach, said after the decision: "Holding the Bank rate is better than raising rates, as one MPC member suggested last month."

Those looking to invest in property may be wondering when the situation will change and of course how. The hope will be that the inflationary pressures in the economy fade, enabling the MPC to seek to head off a deeper economic downturn with cuts. Ian Kernohan, an economist with Royal London Asset Management, predicted that these trends will come about in the latter part of this year, allowing a cut by Christmas. Scottish Widows went further, suggesting that by summer 2009 four rate cuts will have brought the base rate to four per cent and stay there into 2010, which could lead to much cheaper buy to let mortgages and other borrowing in the longer run.

But while many will accept that a delay in rate cuts will wait a few months until the inflationary tide ebbs, the same has not been said for one situation that many fear could hold suppress the property market. Earlier this week chancellor of the exchequer Alistair Darling told the BBC he was contemplating measures to boost the property market, fuelling speculation that a stamp duty holiday could be in the offing. However, this has lead to fears that, should such an announcement be delayed until the pre-budget report in November, potential buyers may hold back in anticipation of the introduction of a measure that could save them thousands of pounds in upfront costs.

Speaking about this issue, the House Builders Federation told the Financial Times: "If this is to be debated in public for too long, clearly it could be detrimental to the market in terms of making people think about whether to proceed with a transaction," adding that there should not be a delay until November.

This was also the view of the Royal Institution of Chartered Surveyors, the Daily Telegraph reported, with senior economist David Stubbs saying: "We urge the government to get on and make a decision. The uncertainty isn't great."

In addition to this, political opponents have also been on the attack, with shadow chief secretary to the Treasury Philip Hammond accusing Mr Darling of indulging in "damaging short-term games".

The expression of such concerns, however, could have a positive result. Just as it seems that interest rate cuts may not come until late in the year, along with any new recommendations from the Crosby report, Mr Darling may now be forced to act sooner, which may not have been the case had he kept his planning secret. If so, then at least one potential boost to the market could appear soon, rather than a continued story of no change.