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Mortgage industry rues rate decision

Mortgage industry figures are disappointed that the Bank of England monetary commitee failed to cut bank base rate last week.

The MPC held the rate at 5.75 per cent, as broadly expected by the market.

Many commentators point to the bank’s inflation report this week as the key indicator of future rate directions.

Royal London Asset Management economist Ian Kernohan says: “I suspect that more than one voted for an immediate reduction in the bank rate. Further weakness in the data and growing concern about the fallout from the credit crunch should be enough to provoke a rate cut next month. Expect the next inflation report to signal that the next move is down.”

John Charcol senior technical manager Ray Boulger was one of several mortgage market commentators who reacted with disappointment to the news, saying a cut would have been supportive.

Boulger says the MPC’s decision fails to look beyond the probable short-term increase in inflation back above the target level of 2 per cent due to the impact of record oil prices.

He claims problems in the credit markets are worsening as increasingly dire news on sub-prime mortgages continues to surface. He says the failure to cut rates means an opportunity to mitigate the potentially serious problems building up in the banking system has been lost.

Boulger says: “This is in light of the increasingly worrying news which continues with relentless regularity to seep out from the banking community of ever more losses on sub-prime lending. A cut of 0.25 per cent would at least have pushed the three-month Libor down to about 6 per cent. It would also have started to redress the Bank of England’s policy mistakes, as outlined in last month’s financial stability report, in dealing with the credit crunch.”

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