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‘Market conditions may prompt cut in base rate’

Mortgage experts believe that the next move in the base rate could be down after the Bank of England’s monetary policy committee held the rate at 5.75 per cent last week.

The decision was widely expected after inflation fell in July to 1.9 per cent from 2.4 per cent in June, below the Government’s target rate of 2 per cent.

Council of Mortgage Lenders director general Michael Coogan says any rise in interest rates would have risked exacerbating the liquidity problems being seen in parts of the market.

He says: “At the same time, there is now much clearer evidence that the cumulative effect of five rate rises since last August is slowing activity in the housing market. The bank is right to wait and see. If market conditions produce a further tightening of credit, it will strengthen the case that the next decision should be that rates go down, not up.”

John Charcol senior technical manager Ray Boulger says: “The MPC’s decision to leave base rate unchanged at 5.75 per cent was regarded as a foregone conclusion by the market. However, the minutes of the meeting, due out on October 18, will be awaited with far more than the usual interest in the hope of getting a better insight into the bank’s latest thinking on the credit crunch.

“I expect the MPC will have discussed the possible need to cut bank rate sooner than previously expected as a policy response to the credit crunch and their thoughts on this will be interesting.”

Alliance & Leicester director of mortgages Stephen Leonard says: “For borrowers, the rate decision will be a welcome relief. For borrowers needing financial security and the ability to budget for their outgoings, a fixed-rate mortgage will prove invaluable. However, for borrowers who are financially flexible, tracker mortgages can still offer good value.”


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