Reaction to possible interest rates cut

Reaction to possible interest rates cut

SmartNewHomes and Assertz give very different reactions to calls for a 0.25% reduction in interest rates.

The Monetary Policy Commision (MPC) is due to announce tomorrow whether interest rates will be altered.

The MPC, chaired by Bank governor Sir Mervyn King, last month considered cutting rates below current levels in a drastic move.

They have been considering the same move this month but leading economists say they are still very unlikely to change.

Alan Clarke, UK and eurozone economist at Scotiabank, said: "The poor second quarter GDP data makes it hard for the Bank of England not to loosen monetary policy further."

He added: "However, we judge that a further reduction in bank rate could backfire and hold back the creation of new mortgages.

"Hence we suspect that the further policy ease will be in the form of more QE, not a cut in bank rate."

Steven Lees, Director at SmartNewHomes, said:

"Decisive action by the MPC to cut interest rates to 0.25% tomorrow would help make home ownership more affordable for new buyers, as well as putting extra money in the pockets of existing home owners.

“With disposable income at an all time low and a less than robust outlook for the economy, a proactive move to make borrowing even more affordable could help fuel growth and encourage people into home ownership."

Stuart Law, Chief Executive of Assetz feels differently about a possible reduction.

He said: "Confidence and an increase in the flow of money are the two ingredients required to set the economy on the road to long term recovery.

"A cut in interest rates to 0.25% will serve only to further dent confidence and will do little to improve consumer spending power as worried homeowners pay down debts."

Mr Law would like the focus to be on the funding for lending scheme, alongside alternative lending options such as peer to peer lending, which both have the potential to massively increase credit options for homebuyers and businesses thus stimulating economic growth.

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