May
8
Debt Advice Bureau Reaction to Bank of England Decision to Hold Rates at 5pc
Filed Under Press Releases
Debt Advice Bureau was unsurprised by the MPC’s decision today to keep rates at 5%.
Stephen Rose, Debt Advice Bureau director, commented:
“We appreciate the problems faced by the MPC as it attempts to deal with the opposing forces of rising price inflation and a slowing economy, as evidenced by the split views of MPC members last month. However, we believe the window of opportunity in which the MPC can cut rates is closing fast. We expect RPI inflation to continue to rise, peaking in the 5.5% to 6.0% range before the year end. If the MPC wants to maintain the facade of inflation targeting, any chance of further rate cuts in 2008 will soon be lost.
“Whilst reductions in the base rate will not, in themselves, increase the availability of new credit for borrowers, nor necessarily be reflected in LIBOR, they would provide some relief to those mortgagors whose mortgage rates track the Base Rate. This becomes even more important when you allow for our expectation that house prices will continue to decline for some considerable time yet.
“The drag of declining house prices on the economy is likely to exacerbate any tightening in consumer spending caused by the restrictions in the supply of credit, currently felt hardest by those with less than impeccable credit histories. Therefore, if there is a genuine desire to try to avoid a full-on collapse of the housing market, it may prove preferable to attempt to keep mortgage repayments affordable as opposed to endeavouring to manipulate house prices through taxpayer funded schemes.
“Historically, corrections in house prices have co-incided with, and often precipitated, economic recessions. Whilst many mortgagors may be able to cope with a slowing economy and even the threat of negative equity, rising mortgage repayments may be one straw too many”.
####
Notes to Editors:
1, Debt Advice Bureau is a not-for-profit debt advisory service which has been provided free and impartial debt advice since 2001. It is a remote service providing advice primarily by internet, as well as by phone and post.
Contact details:
Name: Stephen Rose
Phone: 08700 11 11 13
Email: press[at]debtadvicebureau[dot]com
