MPC Votes 7-2 Against Rate Rise
Suffolk home owners were releived to hear the MPC vote these are the bones....
It wasn't too much of a surprise earlier this month when the MPC announced not to increase interest rates, so with only two members still voting in favour of a hike, can we expect rates to stay frozen? ...
MPCThe Minutes of this month's Monetary Policy Committee were released today, giving an insight into how they reached their decision.
In regards to housing, the Committee felt confident that athough house price inflation had fallen off sharply and housing market activity had declined from its peak, recent data had suggested that the market might be stabilising.
According to the averages of the Halifax and Nationwide house price indices, said the Committee, the three month on three month rate of house price inflation had changed little between February and March, and remained positive; net reservations and mortgage approvals were no longer declining month-on-month.
Consumer SpendingThe Committee had been concerned about a persistent decrease in consumption in the first quarter of 2005. However, they believed that this could have been brought about by temporary factors, for example uncertainty about how quickly the housing market would stabilise, or whether or not interest rates would rise again.
They felt that the slowdown may have reflected the recent low level of housing turnover, affecting purchases of the durable goods associated with moving house, although it was also evident in spending on other items too, such as vehicles.
The Committee believed that there were plausible explanations for the above, however: the fall in house price inflation having a bigger impact on consumer spending than expected; the increase of interest rates up to last August may have impacted only recently; or households becoming more concerned about the inadequacy of their arrangements for income in retirement, although they could not explain why that would have led to a rise in saving at this particular time.
In light of these factors combined with other elements such as the international economy and financial markets, the Committee voted as to whether or not to increase interest rates.
Pro And Con
There had been a split vote of seven to two in last month's meeting: this month, the same two members, Paul Tucker and Andrew Large, retained their stance and again voted to increase rates.
Their viewpoint, according to the Minutes, was that there had not been much change over the month, and they continued to prefer an immediate rise to pre-empt inflationary pressures.
For the majority of the Committee, the main question was whether, after a month's data, the balance of risks to the inflation forecast was sufficiently on the downside to justify leaving the rate unchanged again.
Those who voted for no change concluded that the overall risk was on the downside, and therefore it was unnecessary to change their votes, leaving the interest rate at 4.75 per cent for at least another month