Press Release Summary: If a week is a long time in politics, 24 hours seems to have been a long time in economics. In less than a day the US Federal Reserve has cut its federal funding rate by 0.75 per cent
Press Release Body: If a week is a long time in politics, 24 hours seems to have been a long time in economics. In less than a day the US Federal Reserve has cut its federal funding rate by 0.75 per cent, Bank of England governor Mervyn King has hinted at a rate cut in February\'s monetary policy committee (MPC) meeting and the MPC minutes for January have revealed why there was no cut this month.
The action announced across the Atlantic, which may be interpreted as a dramatic bid to save the US economy from the looming spectre of recession, may have had plenty to do with the speech Mr King made to a business audience in Bristol. He suggested on the one hand that the current 5.5 per cent base rate was \"probably bearing down on demand\", which could be taken as a strong hint that he favours reducing it to 5.25 per cent next month. But - in a possible reaction to events in Washington - he also emphasised that the job of putting an economy back on track was not just the job of a central bank. \"It is important that everyone understands the limits to the ability of central banks to smooth the economy,\" he stated.
Mr King gave two reasons for saying this. Partly it was because banks and markets had \"necessary\" adjustments to make themselves to get the economy back onto an even keel. The other reason was the danger of inflation, which the governor said could force consumer prices index inflation high enough for him to need to explain himself in an open letter to the chancellor more than once.
The potential inflationary pressures have to constrain interest rate policy - with all the market implications this has for property investment and house prices - were made clear today when the MPC minutes were published. Far from the decision on interest rates being a close one, nobody apart from arch-dove David Blanchflower voted for a cut. The minutes stated that \"the short-term inflation outlook had worsened markedly\", with the pressures of rising food, oil and domestic fuel prices all major concerns.
Yet this does not mean there will be no February rate cut. For one, the minutes noted tat next month the latest inflation projections will be to hand, potentially enabling the step of interest rate reduction to be taken with a clearer picture of future prospects. The chief economist at Investec Securities, Philip Shaw, said there should still be a cut next month.
However, Mr Shaw added, \"barring a sudden deterioration in the growth outlook the MPC is unlikely to act aggressively\". The suggestion that this might happen, as the MPC admitted considering in December and Royal London Asset Management economist Ian Kernohan recently said was possible next month, may have receded.
Thus those looking for a boost to the property market through lower interest rates may get at least some of what they wish for on February 7th. But there is no indication that the radical move undertaken by the Federal Reserve is about to be copied here.
In today\'s world Property investment is an excellent investment option especially investment in UK
2025
