Indeed with every first Thursday comes the fear that the Monetary Policy Committee (MPC) will raise interest rates once again, chipping away at an increasingly fragile mortgage market.
With an estimated six-month lag time for each rate change to filter out into the wider markets, surely most observers would be correct to predict that we are finally nearing the end of the collision course July’s last hike set us on?
According to the Financial Services Authority (FSA) the answer, worryingly, is a resounding no.
Going forward
On Tuesday, the FSA’s retail managing director Clive Briault, revealed that the regulator did not have the reassuringly positive attitude most would have hoped for.
Instead his suggestion at the Council of Mortgage Lenders’ Annual Conference that lenders should start “considering contingency plans [to guard] against the worst outcomes” started alarms bells ringing.
Whilst this may have put paid to any glimmer of hope that we are out of the woods, it has added fuel to the fire of those pundits remaining hopeful that the MPC will sprinkle a bit of Christmas magic on rates. However ‘hope’ is very much the operative word.
Over the last ten years, the typically cautious MPC has only altered rates once in December – largely holding off due to the Pandora’s Box effect this would have upon the high-street, especially after such a prolonged tightening of belts.
On paper the odds for a rate cut might look rather slim, however the worsening economic situation could force the MPC’s hand away from the 'sensible' decision in an attempt to divert a catastrophe.
A dire situation
The Bank of England’s governor, Mervyn King, suggested that the MPC might be considering a ‘quick fix’ rate cut when he was once again hauled up in front of the Treasury Select Committee last Thursday.
Calling the current situation “rather uncomfortable,” King’s assertions prompted fellow MPC member David Blanchflower to speak up, firmly stating that rates needed to come down now so that the “we can get ahead of the curve” – or as many inferred ‘regain control.’
Reports have since claimed that former MPC members Willem Buiter and Sushil Wadhwani support Blanchflower’s calls for a cut, however regardless of the impact his opinion could have on consumers, Blanchflower’s voice is only one amongst nine and could easily be drowned out by the majority.
Down, down, down
House prices are certainly slipping, gathering greater momentum with each new slump. Indeed Halifax's November Index saw prices slide for the third successive month, the first time this has happened since 1995.
Whilst Halifax’s economist Martin Ellis noted that such a pattern is nothing unusual in a depressed market, the knock on effect on consumer confidence will only prove to become worse unless the MPC plays its trump card.
Home of Choice managing director, Gerry O’Brien said firmly that the time is now: “It is within the MPC’s gift to make the cut now and restore confidence to the housing market before the current correction spirals into a market recession.
“There may be compelling reasons for the MPC to hold rates, but unless there is another agenda I urge them to make the cut now and give the housing market a major New Year boost.”
O’Brien is not alone in his calls - both the Council of Mortgage Lenders (CML), and Assetz, whose chief executive Stuart Law chastised the MPC for not “facing up to the very clear and present danger” hounding the UK economy, have spoken out in support of a pre-Christmas cut to shore up the economy and help the mortgage industry weather the storm.
Ultimately, Property for Life is unlikely to see the half-point reduction it is hoping for, however if the MPC moves as decisively as is hoped then 2008 could begin to look a lot brighter for the industry.
