'Steady as she goes’, was the message from the Bank of England today: interest rates have again been held at the record low rate of 0.5%, while the quantitative easing programme will stay at £200bn for the time being. This wasn’t exactly a surprise: Bank Governor Mervyn King has said that he expects the recent hike in inflation to correct itself in the coming months without any outside intervention. And although there have been some signs of life from the broader economy lately, it’s clear that the recovery remains pretty feeble – as today’s news on declining house prices reminds us..
The first big economic news of the day came from the Halifax: after seven consecutive months of rises, it reported today that house prices fell by 1.5% in February (chiming with Nationwide, which told a similar tale last week). Again, you don’t have to look too hard for excuses for this: the stamp duty holiday for the cheapest homes has just ended, while the Baltic weather we’ve been having thus far in 2010 hasn’t been terribly conducive to house-hunting. So you could argue that this is just a temporary blip.
On the other hand, Halifax chief economist Martin Ellis said there had also been a sharp increase in the number of homes on the market, presumably (in part) because would-be sellers have seen prices rising again. This is starting to correct the imbalance between demand and supply, which has surely been the biggest cause of the recent hikes. After all, the Bank’s low interest rates may have made mortgage repayments more affordable, but the conditions for buying still aren’t great: credit is still hard to come by, and the economic outlook remains pretty murky (particularly post-election). Some would also add that UK house prices are still over-valued. So if anything, prices may have further to fall this year - with or without the wrong kind of snow.
On the plus side, the latest figures suggest there’s been an upturn in both the services and manufacturing sectors lately, fuelling hopes that the economy might actually grow a bit this quarter. But as the pound's recent travails have demonstrated, the longer term picture still looks distinctly mixed – so a ‘wait and see’ policy continues to make sense as far as the Bank’s concerned. This is the twelfth consecutive month of 0.5% interest rates. We suspect there’ll be plenty more yet.
In today's bulletin:
Bank holds rates - but house prices on the slide
Man United owners see red with Goldman over Jim O'Neill
Willie Walsh insists BA will stay airborne through cabin crew strike
UK flagging on health and safety
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