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Half Per Cent Cut Still Falls Short

8th October 2008 | back to article listings BACK    print this article PRINT

Stuart Law, Chief Executive, Assetz, comments:

“The Bank’s decision to implement a 0.5% cut in base rates ahead of tomorrow’s MPC meeting comes as central Banks worldwide start to implement concerted moves to stabilise their economies. While ahead of schedule, the move itself will come as little surprise to many commentators, who were expecting a heavy cut in base rates by tomorrow at the latest.

“If anything, there will be disappointment that this falls somewhat short, and I would urge the Bank to push forward with a full percent drop, bringing rates down to 4% as early as this week.

“Here in the UK it is becoming increasingly obvious that there is no short-term inflationary risk and that lowering rates would have a negligible impact on inflation in the current climate. Oil prices are back to where they were a year ago and are still falling, wage inflation is non-existent, and food and fuel have already been moderated by reduced consumer expenditure and statements that food price inflation has peaked.

“The financial landscape is constantly changing, but I think we are now at a point of realisation with inflation that should permit central banks to start savagely cutting rates. I now believe that base rates will reach 4% imminently, and I would not be surprised to see them fall to between 3.5% and 3% by early next spring.

“However, base rate cuts will not solve all present issues. The Government and central bank intervention that is reaching a crescendo this week will, we expect, significantly ease inter-bank lending levels and rates back to sensible levels over the coming weeks, and this will in due course fix the mortgage market problems. The reduction of rates is more targeted at the economy and will be a great help to businesses and homeowners at a time when the economy is slowing sharply. It is the correct move, as part of a co-ordinated action.

“In the future, I believe this week will be seen as the final turning point in the credit crunch. It is just a pity that these significant actions were not taken months ago when the cost would have likely been lower.”  

Managing Director’s Blog: http://investors.assetz.co.uk/blog/archives.php

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4424.html. Alternatively, please see our full press release archive.

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