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'Controversial' BoE holds rates again

Jaimie Kanwar

The BoE has kept UK interest rates at 5% for the third month in a row...

The Monetary Policy Committee's decision came despite widespread worries about the state of the UK economy amid a global slowdown.  However, rising fuel and food prices means that there are still worries over controlling inflation.

Neil Chegwidden, Head of Residential Research at Jones Lang LaSalle was not impressed with rate hold, and argued that millions of homeowners would be 'hugely disappointed and dismayed that an opportunity to provide them with a mini-fillip has been missed', adding: “Today the MPC has come down on the side of the rock, rather than the hard place which suggests, in simplistic terms, that they are more concerned about inflation than a recession.

“Britain's households are having to cope with and manage significant squeezes on their domestic finances – from higher weekly shopping bills to inflated utility and petrol prices. With the credit crisis and the more recent rise in swap rates, which will increase the cost of fixed rate borrowing, many are also facing higher mortgage costs in the coming months”.

Controversial decision?

Steve Cox, Operations Director of Spicerhaart Financial Services, argued that holding the base rate at 5% was a 'controversial decision': “Something needs to be done to prevent the credit crunch taking a greater hold on the property market.

 “House prices are falling, and we have already seen drops of up to 10% in some areas, but the moderation of house prices has encouraged an increase in buyer appetite, and interest, to purchase now. 

However, there are many obstacles in the way preventing them from doing so. The housing market is an integral component of the economy, and it is essential that these stumbling blocks are removed. Suitable mortgage funding and products are crucial factors. Any movement in the Bank of England base rate alone will not kick start purchase activity.”

Boe must act!

Nicholas Leeming, director of propertyfinder.com, expressed his worry that a lack of mortgage availability was 'threatening the economy': “Despite a series of base rate cuts, interbank lending rates have tracked the opposite direction to base rates since January.  In turn lenders have put up their mortgage rates and tightened criteria. 

“Many people are left unable to qualify for a loan, and many more have been left no choice but to suffer cripplingly high mortgage costs.  Housing transactions have stalled and house building has been suspended – storing up more trouble for the future.  The Bank of England must act, but now needs to put its full weight behind other steps directly targeted at freeing up liquidity in the money markets.'

Tunnel vision?

The British Chambers of Commerce (BCC) said that the MPC should be considering the whole economic outlook and not just inflation.

"We understand the critical need for the MPC to maintain credibility, but the MPC cannot disregard the worsening threats to growth," said BCC economic adviser David Kern. "The necessity to write a letter to the chancellor should not be the overriding consideration for the MPC."