Bank points to upward move in interest rates

Interest rates look set to move in an upward direction in the Spring after members of the Bank of England's Monetary Policy Committee reported their first split decision for 10 months.

According to the minutes of the Bank's latest meeting, one of the nine members voted for the base rate to rise a quarter-point this month, citing the rebound in GDP growth, shares and borrowing.

Paul Tucker, the Bank's executive director, also said he believes a rebound in the housing market warrants the rate increase from the current 4.75 per cent to 5.0 per cent.

The remaining eight other members backed the decision to hold rates for the fifth successive month, despite an acknowledgment that action would need be taken if the economy continues along the Bank's forecast.

This means members are eager to watch trends become clearer in consumer spending and on the housing market, before they are willing to hike interest rates.

The MPC committee, backed by the latest Inflation Report, agreed that there had been a pick up in the housing market in January, despite the base low in the number of transactions.

However, property website Rightmove, found that sellers returning to the market are optimistic, with asking prices during February jumping by £4,321.

This represents a rise of 2.3 per cent compared to January, but other research from the group indicates sellers cannot afford to become complacent.

The site found there is record supply of new properties populating the market, with over 30 per cent more property now available in the UK than compared to last year.

Rightmove added that because there is no immediate pressure to sell, buyers and sellers might be in for a period of stagnation rather than declining prices.

Meanwhile, the ongoing difficulty for estate agents has prompted many to set high asking prices in a desperate attempt to pull back lost commission from the end-of-year-slowdown.

Houses now spend an average of 85 days 'for sale', compared to the boom time in the summer when houses were coming off the market in just 53 days.

 

25th February 2005

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