Press Release Summary: This week brought what appeared to be some positive news amid the gloom of falling house prices, as the Bank of England told the world it believed the worst of the credit crunch had passed and that a return of confidence in the coming months was justified.
Press Release Body: This week brought what appeared to be some positive news amid the gloom of falling house prices, as the Bank of England told the world it believed the worst of the credit crunch had passed and that a return of confidence in the coming months was justified.
Comments of this kind, coming from deputy governor John Gieve as he launched the Financial Stability Report, were clearly music to the ears of some. Today the National Association of Estate Agents (NAEA) gave them a clear welcome, with chief executive Peter Bolton King stating: \"There has been much doom and gloom reported over the past few months, especially with regards to the global credit crunch. However, to hear that there is light at the end of the tunnel should come as a massive boost to consumer confidence and is the crutch that both consumers and organisations very much need.\"
As regards the effect of all this on the property industry, Mr Bolton King added that it had been the contention of the NAEA all along that the recent situation has never been as bad as that of the 1980s and 1990s, something he said was \"reflected by the report\".
But much as the words of Mr Gieve were welcomed, was that enough? Should the property market simply be content to sit tight for a while as the storm dies down and then get back to business?
Mr Bolton King did not think so. He said: \"However, in order for consumer confidence to be nurtured over the coming months it is critical for the Bank of England to further reduce interest rates this month in order to help bolster consumer confidence even further,\" adding: \"It remains paramount that the shackles currently around the mortgage market are loosened.\"
With just days to go until the next decision on interest rates, attention will turn to how the monetary policy committee reads the economic runes. They too may wonder if more cuts are needed given the expectation of improvements in the liquidity situation. Equally, they must bear in mind a whole range of economic data, primarily, of course, the level of inflation and its prospects to go up or down.
Last time the MPC was divide three ways for the first time since May 2006. Six of the nine members supported the rate cut which took place, while two voted for a hold. On top of this, David Blanchflower, known as an arch-dove, voted for a 0.5 per cent cut. In a speech this week he outlined his views on the economy and inflation, making clear his own instincts for rate cutting had not changed, as he stated: \"Monetary policy in my view still remains restrictive currently and we need to take action to loosen policy sooner rather than later.\"
But if it is reasonable to expect Mr Blanchflower to vote for a trimming to 4.75 per cent or even 4.5 per cent next week, it appears that is not widely expected of his colleagues. An Adfero poll of nine economists and institutions resulted in a unanimous prediction of a hold, although Howard Archer of Global Insight qualified this by suggesting the decision was close and any negative economic news in the next few days may swing it in favour of a cut.
But if the recent pattern of rate reductions in alternative months is any guide, June will be a more likely bet. The last time the base rate changed in successive months was when it was raised in May and June 2004, so while such events are not unprecedented, they are rare. On the other hand, the same could be said of three-way voting splits.
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