Pressure mounting on Bank of England to cut interest rates

The Bank of England is feeling the pressure to cut interest rates due to the steep drop in mortgage lending.

Potential buyers are thin on the ground due to ever increasing in fuel bills and mortgage rates, and are naturally more hesitant when looking to move home.

The industry blame the global credit crunch for the latest February mortgage lending figures which show a drop of 7% to £24billion. Even the Council of Mortgage Lenders fears continuing problems with the mortgage market unless action is taken by the Bank.

In recent weeks we have seen some lenders withdraw from the market altogether, whilst others, including the Halifax have opted to raise rates in order to both protect profit margins AND reduce customer demand. By adding 0.2% to their 2year tracker mortgage, this would mean an increase of £30 a month on a typical loan of £120,000.

A spokesman from mortgage brokers London & Country explains this move as a means for banks to manage their volume of business as determined by the prices they charge. He says,”They don’t want to attract too many customers as the credit crunch has made funding harder to come by and more expensive.”

More figures to affect the Bank’s decision include a sudden upturn in retail sales, with stores reporting an increase of 1% in sales for February compared to January figures. This figure does not appear high, but when experts were expecting the figure to drop, then the increase becomes considerable.

Whilst he Office For National Statistics found shop takings up £200million a week last month, economists are left baffled as to how the customers are able to keep spending.

These figures do not support recent reports from larger stores of falling sales and profits.

Taking all these facts and figures into consideration, the Bank governor has to be very careful what he decides to do.

The common belief is that a quarter point rate cut from the current 5.25% is the most likely form of action, however inflation rose 2.25% last month-which is the fastest its been for 9months.

The Bank’s rate-setting panel are keen to keep inflation in check. It is already above the government’s 2% target and it could go higher as a result of record oil prices.