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Mias Predicts a Cut in Interest Rates by the Summer
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Added: 03/10/2006
Type: Summary
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Mias Predicts a Cut in Interest Rates by the Summer
MIAS (the Mortgage and Insurance Advisory Service) has predicted that the Bank of England is likely to cut the base rate by 0.25% by summer 2006, with a further reduction of 0.25% possible later in the year.
On recent developments – not least the Bank’s latest quarterly inflation report (which predicted that inflation would stick close to its 2% target) – have dampened down expectations of a cut. However, MIAS (http://www.mias-ltd.co.uk) believes there will be some movement on interest rates in the short to medium-term.
Outlining his predictions for the coming months, Roger Milbourn, Director of MIAS said: “Prospects of any early moves in interest rates appear to have faded, yet I feel that there will be a compelling case for a cut in the base rate, probably early in the second quarter of 2006.
“Although last quarter trading for the Retail sector in 2005 was better than expected, I am of the opinion that quarter one 2006 trading figures will show a further slump on the High Street. A considerable number of high street retailers are already operating at low profit margins in an attempt to boost sales. If the retail sector is to continue to grow, so must household budgets.
“When the recent record hikes in domestic fuel bills start eating into the housekeeping, consumers will have less money in their pockets. Thus, I predict that the Bank of England will decide to cut rates to 4.25%, in order to trigger an increase in consumer spending. A further cut of 0.25% may be necessary later in the year, to achieve the desired impact on the economy.”
In terms of the housing market, Roger Milbourn said: “The market is showing signs of a sustained recovery; buyers responded positively to last August’s cut and prices have risen slightly. With house prices increasing steadily by small margins (see MIAS mortgage news - http://www.mias-ltd.co.uk/news-index.htm ), it may well be that a 0.25% cut would not push inflation above the Bank’s 2% target.”
As interest rates are probably the most important influence on house prices, one or two small cuts in the base rate should encourage a small, steady rise in prices as confidence improves.
Commenting, Alistair Good, Managing Director of MIAS, said: “The Bank’s Monetary Policy Committee is happy to sit tight for the time being, but we are convinced that it will not hesitate to cut interest rates if consumer spending wanes and growth does not continue to hold in.”
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