A Rate Cut Merely Delayed?

While the property market has produced a series of clear signals about its fortunes in recent months, from the slowdown in the residential housing sector to the rise in rents, the wider economy has thrown a number of contradictory signals into the melting pot of uncertainty. Thus the credit crunch and a slower housing market have occurred at a time when inflation has fallen below the government target, consumer spending has been high and unemployment low. Notwithstanding an increase between July and September in the latter figure, the overall picture has remained one of uncertainty and confusion amid often contradictory and sometimes ambiguous indicators. This, at least, is what the Bank of England monetary policy committee (MPC) has repeatedly stated in its minutes after each hold decision in recent months. While it remains to be seen if the vote in favour of this continued wait-and-see strategy was as clear cut this month as in the previous three (only in October was as much as a single dissenting hand raised), it is clear enough that the uncertainty spoken of in the minutes which follow each month has not yet given way to the certainty of an urgent need to cut. Inflation was, until this week, a highly encouraging factor, with the consumer prices index (CPI) rate below the two per cent target rate three months running. Last month rising food and petrol prices pushed it to 2.1 per cent, prompting economist Howard Archer of Global Insight to say: "We suspect that the Bank of England will not trim interest rates until February unless there are very clear signs over the next few weeks that the economy is slowing sharply." The November inflation report published today has, however, certainly given a signal that rates will soon have to be cut. It warned that inflation would pick up to 2.3 per cent despite an economic downturn in 2008, but also said the CPI rate would still be hitting the target in two years even with rate cuts. Responding to the report, Howard Archer was now more positive about the prospects for interest rates, stating: "The Bank of England is markedly more doveish and indicates that at least two interest rate cuts are likely," reported the Times. This view was echoed by Vicky Redwood of Capital Economics, who said: "November's Inflation Report gives a clear signal that a series of interest rate cuts lies ahead." While there is a consensus that rates will be coming down fairly soon, there is still hope in some quarters that a fall could take place before the end of 2007. Drew Wotherspoon of mortgage advisors John Charcol said the voting figures in the MPC minutes, due to be published on November 21st, would give a signal over the likely outcome of the December meeting. "If the vote was tight then there is clearly every chance that they may fall in December," he predicted. Lower interest rates, which in turn will lead to lower mortgage rates, will have many effects. Apart from the impact on the wider economy, a cut holds out both the hope of lower rates for buy-to-let mortgage holders and a possible spur to the housing market, which in turn will have its own knock-on effects on the rental sector. What now seems certain is that rates will soon be coming down. The question is when. nIn today's world Property investment is an excellent investment option especially investment in UK