How Fast Will Rate Fall? By Jim Barnaby At Isnare.com Ezine Articles

As interest rate decisions go, today's verdict by the Bank of England monetary policy committee (MPC) was perhaps the most widely predicted for some time. In the last week, an Adfero poll of seven economists and a Reuters survey of 60 both produced unanimous predictions of a 0.25 per cent cut.

Subsequently, Bloomberg did manage to find three dissenters among the 61 economists it asked, with two going for a larger cut and one forecasting a hold decision. One individual may have been feeling rather lonely when the decision came through today.

In its announcement, the MPC emphasised that its role had been "to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target." This suggests that while the MPC acknowledged the potential for inflationary pressures to push the consumer prices index upwards, it did not see 'stagflation' as a risk, rather that below-target inflation would be the result of a major slump. While stagflation would be a worse outcome, it may be remembered that undershooting the inflation target would no more be regarded a success than overshooting it.

Those interested in the implications for property investment may be pleased at the thought that lower rates could boost the property market, making mortgages cheaper and offering the hope that there will be further monetary loosening to come. Thus a major question is that of how much the MPC will go on cutting rates.

Speaking prior to the decisions, which turned out as he predicted, Global Insight chief economist Howard Archer forecast stated that the Bank was "unlikely" to copy the recent rate-slashing actions of the US Federal Reserve, which cut the Federal Funds rate by 0.75 per cent on January 22nd and by 0.5 per cent on January 30th.

Explaining that the UK's economic growth is relatively strong and noting the potential threat of inflationary pressures from rising food and fuel prices, Mr Archer said: "Instead, the Bank of England is likely to cut interest rates gradually but steadily."

Such a move would not please everyone. David Kern, economic advisor to the British Chambers of Commerce, argued the Bank needed to swiftly bring rates down to five per cent, which could be interpreted as a demand for cuts in successive months. Given that an eight to one decision to hold rates has fallen between two trimmings of the base rate, this may appear unlikely.

Of course, Mr Kern's interest is in the fortunes of the struggling retail sector, which may be doing worse than the property market given the response to today's rate cut by Spicer Haart estate agents. It noted that in January the number of first-time buyers rose by two per cent and accounted for a third of all buyers. This may be the first indication that a segment of the market that has suffered from high house price inflation could be playing a major part in its recovery.

For all that, next week's inflation report publication may give new clues about the strength of inflationary pressures, while the release of the minutes of the meeting later this month will show whether the vote was as clear cut as the unanimous decision in December or a split decision which indicates widespread doubt over the MPC's scope for rate-cutting. Such factors may not make a cut in March likelier, but they could just make all the difference in April.

In today's world Property investment is an excellent investment option especially investment in UK

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