With Consumer Price Index (CPI) inflation topping 3 per cent, forcing Mervyn King, the governor of the Bank of England to issue a letter to Chancellor Gordon Brown explaining the position, and ever-increasing house prices, many believe shock tactics are needed to cool the market. However, others argue this is unnecessary. We asked experts what the MPC announcement could bring?
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Alan Lakey, senior partner at Highclere Financial Services:
“There has been a lot of speculation about how much the Base Rate will rise. I can’t see it going up by less than at least half a per cent. The recent inflation report and other statistics seem to back this up, and should help to stabilise the market, at least for the time being.”
Louise Cuming, head of mortgages at moneysupermarket.com:
“I’m going to stick my neck on the block and say it will go up by half a per cent. The underlying economy is so strong, despite a lot of doom and gloom. Employment is strong and inflation is only up for the short-term. The only way the Bank is going to be able to slow the economy down is by raising rates and hitting people fast and hard by half a per cent. People live by their means; if they’ve got it, they spend it, and this is going to hurt a lot of people. I think it will rapidly cool the market and will fuel the fixed rate frenzy, because so many consumers fear more rate increases.”
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James Cotton, mortgage specialist at London & Country:
“Looking at what the current mortgage and housing markets are doing, in additon to swap rate activity and what economists are saying, it seems an interest rate rise by the Bank of England is a dead cert. However, I think everyone is getting a bit over-excited in predicting a half point rise.”
Ray Boulger, senior technical manager at John Charcol:
“It’s highly unlikely rates will rise by half a per cent. There doesn’t seem to be any reason to go that far. The argument is that the market needs a short, sharp shock, but that could be overkill. The justification of going to 5.75 per cent is just not there, as by the time the impact comes through, the CPI will have come down to target anyway. A half a per cent rise would be a real shock to the market. Equally, it would be just as big a shock if rates didn’t go up.”
