Risk of inflation prevents monetary policy committee from coming to housebuilders' aid by cutting rates
The Bank of England has voted to keep interest rates on hold at 5% today
Despite pressure to cut rates from those involved in the housing market, analysts said the Monetary Policy Committee had little option but to keep the UK base rate on hold.
They could not cut because inflation is already well above target and likely to push higher and they could not raise given that the UK economy is weakening so markedly.
Neil Chegwidden, Head of Residential Research at Jones Lang LaSalle, said that even a cut would not have altered the situation in the housing market. He said: “For the UK housing market, not even a 25 or 50 basis point cut would have been able to turnaround the fortunes of the ailing residential market. It continues to seem inevitable that house price falls will continue well into next year.”
However, David Bexon, managing director of SmartNewHomes.com, criticized the decision. He said: “Developers are working hard to break down the barrier preventing many potential buyers from entering the market, providing deposits and removing the additional burden of stamp duty across a number of developments. However, the Government needs to be far bolder in its approach to tackle the long-term challenges facing the UK housing industry, and introduce genuinely decisive proposals if it is to bolster what is currently a flagging market.”
Commenting on the Bank of England's interest rates decision, RICS Chief Economist Simon Rubinsohn said: "The threat posed by rising inflation pressures is too great to be lightly dismissed and a recession now looks a very real possibility."
"However we continue to believe that knock-on effects on pay settlements will ultimately be very modest. Meanwhile, both survey reports and hard data point to further deterioration in the economy, with the beleaguered state of the housing market exacerbating the extent of the downturn. The MPC will need to ease policy as further evidence emerges that rising food and fuel prices are not becoming entrenched in the wage bargaining process. This should be visible later in the year."