Rate cut answer blowing in the wind, says Lomax

The issue of interest rate cuts has been high on the agenda this month as the Bank of England s own inflation report hinted strongly at UK mortgage cuts next year. However, the minutes of the latest meeting of the monetary policy committee (MPC) showed that the people making the decisions were far from convinced that the time for such cuts was nigh. With every stakeholder in the property industry, from lenders to homeowners and property investors comma watching the situation and waiting for news, it is perhaps natural that every piece of economic information, whether in the housing market or other sectors, is both interpreted in terms of its potential rate-setting implications or prompts a call for change. This was certainly true today when the British Bankers Association (BBA) published its latest figures for UK mortgage lending. These showed that in October the net increase in mortgage lending was 5 billion, down from 5.9 billion in September and also lower than the six-monthly average of 5.6 billion. Gross lending was also down, standing at 18.8 billion against 18.9 billion in September and the six-month average of 19.1 billion. BBA statistics director David Dooks was clear enough that the figures showed a slowdown in progress, saying: "October s data provide evidence of a rapidly slowing mortgage market and of consumers limiting their personal borrowing." He said the strain on household finances, the introduction of home information packs and the impact of higher interest rates were all contributing to the trend. The interest rate aspect was cited by the Royal Institution of Chartered Surveyors (Rics) in its response to the figures. Rics chief economist Simon Rubinsohn said: "The accumulating evidence of a more troubled housing market is likely to strengthen the case for an early response from the Bank of England." But when will the MPC make such a move? The rationale for holding back from a rate cut in recent months has been the uncertainty over how various factors, particularly the credit crunch, were likely to affect the inflation situation. Three successive months of the Consumer Prices Index falling below the target rate of two per cent did nothing to change this view. What happens next is, despite the signal of cuts to come emanating from the November Inflation Report, still a matter of uncertainty, according to MPC member Ruth Lomax. Speaking in Hull, Ms Lomax warned that every prediction had to be taken with "a large pinch of salt" - even the Bank s own, which she said were "subject to a very wide margin of error". Citing the tighter credit situation, the ability of individual households to deal with it and energy prices as the factors which would determine whether the "upside" or "downside" influences on inflation prevailed, she compared the challenge faced by the MPC to that of meteorologists on a windy day, who were trying to work out if the brewing storm was "a force 6 strong breeze, or a full force 8 gale". In the midst of such uncertainty and, to stretch the weather analogy further, the desire not to become the economist equivalents of Michael Fish the day before the 1987 Great Storm, it may be that the MPC s wait-and-see policy will persist for longer than many will wish. Then again, it may not. However much Rics, homeowners or property investors will wonder when the cut will come, the answer may indeed be blowing in the wind



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