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When more of the same is good news

17th November 2008 | back to article listings BACK    print this article PRINT

With the world economy struggling, many will look at the future with some foreboding, wondering about their jobs and businesses. For property investors, the question will be whether a market that has been in a downturn for many months already can bounce back sooner than the rest.

The possibility that the property sector may be in a more advanced stage of the cycle could be more than just speculation. Those looking to invest in property will benefit most - if they have to borrow to fund it - from lower interest rates. For that reason, more base rate cuts could be good news. With two in the past two months, not to mention the Bank of England inflation report out last week which was far from ruling out more reductions, these prospects may be good ones.

Speaking on the issue of rates this weekend was the man who gave up responsibility for them the moment the power was placed in his hands. Gordon Brown, who set up the monetary policy committee (MPC) when he became chancellor in 1997, suggested that central banks around the world could be part of further international monetary action to help the global economy.

Mr Brown did not just stop with interest rates, of course. He also spoke of how governments could improve matters by agreeing to lower taxes and spend more, stating: "It is now becoming increasingly accepted around the world that a temporary and affordable fiscal stimulus is necessary."

The prime minister was speaking ahead of the G20 in Washington. What agreements emerge in the next few days on the international front will be interesting to see from a wider perspective - although a 'new Bretton Woods' style agreement may not involve pegging exchange rates like the old one as this would restrict monetary policy flexibility. Nevertheless, even without large-scale international agreements at government level, central banks with interest rate independence can get together to take joint action, as was proved last month.

As a result, it would be unwise to rule out the Bank of England getting involved in similar action in the future, with the chance that this would filter through to mortgage costs as the reduction this month did.

Whether that will happen next month or in December may be hinted at this week. The publication of the minutes of the November MPC meeting may not add much in terms of reasoning behind the 1.5 per cent cut beyond what has already been said at length in the announcement on the day and when the inflation report was published. But it will show whether this was a unanimous view or a split vote - even if that split was between those who wanted the larger cut and advocates of a smaller one - and it may give a clue as to how the MPC will vote next time.

Even if the rate is held next month, that may only be a hiatus before the next reduction. If so, investors may find their options expanding even more.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4490.html. Alternatively, please see our full press release archive.

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