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The next cut

28th November 2008 | back to article listings BACK    print this article PRINT

For several months of this year, David Blanchflower stood alone on the Bank of England's monetary policy committee, voting to cut the base rate for month after month while his colleagues kept it on hold and the minutes talked about the "balance" between upside and downside risks to inflation.

On two occasions - July and August - it got worse as Tim Besley took the contrary view and supported a rate rise. But Mr Blanchflower persisted, arguing that he could see the tell-tale signs of an imminent downturn.

Explaining this in an interview with the Guardian this week, Mr Blanchflower said he had been privately derided for his view this year, but the sudden shift in approach of the last two months has changed all that. With the base rate having been cut by two per cent over the past two months, he now suggested that - albeit belatedly - the MPC is following the path he had advocated all along.

He stated: "We are now doing the things we should be doing. All hands are to the pump and I get the sense that people have absolutely got it."

This being the case, those keen on investing in property and hoping for a further rate cut when the MPC meets next week may be very optimistic about the prospect. This view may be further bolstered by the similar findings of two surveys of economists and other experts about the forthcoming decision.

Adfero's poll of eleven economists brought agreement and disagreement. The point upon which all were agreed was that the base rate will indeed be trimmed again next week. The area of debate was by how much. Of these experts, one went for 0.5 per cent, two went for 0.75 per cent and five for one per cent. But in addition to this, three more said it would be either 0.5 per cent or one per cent. There was, therefore, disagreement and uncertainty about how much the base rate will fall, but not whether it would.

The Reuters poll of economists found the same prevailing view. The consensus was again that the cut will be at least 0.5 per cent, while some went as far as to tip a whole percentage reduction.

So for those keen for a rate cut, it seems the likelihood is that we will see another next week as the MPC seeks to get to grips with falling inflation and a contracting economy. Then will come the real moment of truth - whether the lenders decide to pass the rate on in full. Most major mortgage providers did last time. If they do so again against a backdrop of a base rate at 2.5 per cent or lower, the cost of investing in property could become much more attractive.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4512.html. Alternatively, please see our full press release archive.

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