Released on: October 31, 2007, 7:04 am

Press Release Author: Jim watson

Industry: Real Estate

Press Release Summary: Since it became clear over the latter weeks and months of the
summer that the UK housing boom was slowing down, speculation over interest rate
cuts has emerged.

Press Release Body: Since it became clear over the latter weeks and months of the
summer that the UK housing boom was slowing down, speculation over interest rate
cuts has emerged. What had begun as a question of when rates would rise to six per
cent has become first a gradual realisation that the 5.75 per cent rate was likely
to stay put for some time, followed by talk of cuts.

The responsibility of the Bank of England\'s monetary policy committee (MPC) is of
course the maintenance of consumer prices index (CPI) inflation within a percentage
point of the two per cent target set out by the government. House prices, which are
not part of the CPI, are no responsibility of theirs.

It was natural enough that UK mortgage rates should rise after the CPI rate burst
its banks by reaching 3.1 per cent in March, obliging Bank of England governor
Mervyn King to write an open letter to the chancellor explaining what the MPC was
going to do about it. But CPI has since plummeted, falling below two per cent in
each of the last three months. Thus the case for a rate cut has emerged.

The MPC has held back, unanimously in August and September and with just one
dissenting voice this month, from making any change, explaining in its minutes that
the situation in the economy is uncertain and the effects of the credit crunch need
to be observed.

Such an approach was described as \"wait-and-see\", but this month\'s MPC committee
minutes suggested the November inflation report might provide the clear guidance
they were looking for. Howard Archer, chief economist at Global Insight, told the
Times: \"The October MPC minutes indicate that a November interest rate cut is a
genuine possibility. The minutes reveal that the MPC discussed the case for a rate
cut in October, with David Blanchflower favouring such a move.\"

But a cut which could boost the UK housing market property mortgage just when it
seems to be in decline may be a bit less likely now. MPC committee member Kate
Barker, a housing expert, told a gathering of businessmen in London yesterday: \"Not
all of the changes since early August imply downward pressure on inflation. Upward
pressures from commodity markets, in particular the oil market, remain a concern.\"

Those words may come as a major blow for those hoping to see the housing market
boosted by a cut, plus of course those struggling with mortgage payments. Ms Barker
herself said that she didn\'t expect there to be a \"significant\" downfall in the
housing market, since there was no expectation of overall economic maelstrom or
higher unemployment anytime soon.

Recent predictions of when the MPC will cut rates have tended to suggest next year
is the best bet. The most recent example came from Barclays Capital, which this week
tipped rates to next be cut in February 2008, followed by a second 0.25 per cent cut
in May, Bloomberg reported.

If such predictions are true, the housing market may have to ride out a lengthy
period before the respite of a rate cut arrives. As it happens, the November
inflation report is not out until the 14th of the month, six days after the next MPC
rate decision is due. Thus it may be that the MPC holds back in November and instead
moves in December, should a favourable report produce widespread expectations of a
cut. It may be that a reduction next month is off the cards, but that still leaves
one more chance for a reduction this year.

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