Bank shows downward interest in rates

Interest rates in the UK are likely to slide in 2005, according to the minutes taken from the Bank of England's MPC meeting to discuss the next move for the UK economy.

The minutes reveal that the nine members heading the committee voted unanimously to keep the base rate at 4.75%, in the face of five successive increases since November last year.

They said the economy had performed in line with expectations and rates would either be frozen or reduced, with no mention from any member of rate rises.

Fluctuations on the housing market had also fallen in line with MPC predictions, while the slight comeback in activity for November was rejected as a glitch.

Rob Carnell, analyst at ING, said that by the Bank speaking about the benefits of cutting the base rate, there was "an easing bias", not seen since August last year.

There was further acknowledgment from economists that although appearances suggest the MPC is more relaxed when fixing rates, a dip is not likely in the immediate future.

Philip Shaw of Investec told the FT: "It is quite significant that lower interest rates were discussed at the meeting but some people in the [financial] markets are getting ahead of themselves."

He said it would take a big realisation of one of the downside risks the MPC minutes exposed for a fall in rates to happen, such as the crash of the housing market.

Only last week there was a last ditch surge in consumer spending, an increase in earnings and growth and a drop in the number of unemployed.

Yet overall, the committee notes reveal for the eighth month in a row, rates are to be frozen, prompting some to suggest rates might have even peaked.

According to the Halifax, this is one likely outcome, given their estimate that interest rates by the end of next year will have reached 4.25%.

But the Nationwide is at odds with its rival, as it suggests the base rate will be 5% by the end of 2005, with a growth in the housing market of 2 per cent.

Homeowners have meanwhile warmed more to the Halifax figures, which indicate next year there will be low interest rates, good levels of unemployment and a continued shortage of housing in the South.

Their reputation for predictions is still fairly in tact, given their estimate for the end of 2004 that rates would be 4.5%.

Britain's biggest mortgage lender said there was also hope for first-time buyers – with the news that earnings are to exceed the rate at which house prices are growing, while the costs of borrowing should begin to fall.

This supports evidence from Hometrack property group, showing household income should increase 5% during 2005, banks should become more generous to lend and unemployment will continue to fall.

 

24th December 2004

Related News

Latest News

                             

NEWSLETTER SIGN UP