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Economists certain rates will be cut

Written by Jim Barnaby

Thursday, 07 February 2008

Those looking at investing in property will doubtless have been paying much attention to the possible movements in the UK base rate. Recent comments by the Bank of England governor Mervyn King, speaking to an audience in Bristol, stated that there may be room for a loosening of monetary policy, but not too much.
Mr King's comments may have been a response to the news of the 0.75 per cent cut announced the day before by the US Federal Reserve, by emphasising that it was not for the central bank to take all the responsibility for putting the economy back on track. Much would depend on the institutions themselves to do that, Mr King emphasised, while also stating that inflationary pressures could restrict the Bank's scope for movement on rates this year.
Yet for all that a rate cut has been widely expected and, in an interview with the Guardian this week, Professor David Blanchflower, the one monetary policy committee (MPC) member who voted for a cut last month, said that to shy away from a cut for fear of unleashing inflationary was akin to "fiddling while Rome burns".
While this may have hinted at exasperation with the attitude of some of his colleagues, Professor Blanchflower should be feeling a lot better after February 7th, unless economists everywhere have got it wrong. The expectation appears unanimous: next week the MPC will trim the base rate by 0.25 per cent.
Such was the outcome of the Adfero poll of seven economists this week. Global Insight chief economist Howard Archer did not entirely dismiss the prospect of a larger reduction, but, he said: "We suspect that only a further very sharp fall in equity prices next week and last minute data indicating that the UK growth outlook has started to deteriorate sharply could possibly prompt a 50 basis point cut."
Royal Bank of Scotland economist Ross Walker said the ability of the Bank of England to take the step of making a small cut had been helped by the two major rate cuts made by the American Federal Reserve in the last fortnight. He stated: "The significant monetary and fiscal policy easing in the US will also allow the MPC to proceed more cautiously - Maradona has just acquired US citizenship."
The Maradona reference may be an allusion to an analogy once used by Mervyn King to describe a famous goal by the Argentine footballer against England in 1986, when the incorrect anticipation of his movement by the England team enabled him to run from his own half to the goal in a virtually straight line. (Mr King's point was that - in economies as well as on the sports field - it is possible to get people to react in the way one wishes to the perception of what a forthcoming action might be, rather than what it actually is).
If the Federal Reserve is the entity which, to stretch the analogy, has been willing to employ a strong hand in recent weeks, the Bank of England seems to be in position to make an entirely predictable move. This was shown not just by the seven economists speaking to Adfero but the 60 polled by Reuters this week, every one of whom forecast a 0.25 per cent cut. Either economists everywhere have bought a major dummy or investors in property can planning ahead for a cut.
In today's world Property investment is an excellent investment option especially investment in UK

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About The Author:

Jim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property

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