MPC's interest rate cut 'is not enough to stimulate demand'

09 2008
Interest rates need to be cut by more than 0.5 per cent for consumers to want to buy a house, it has been claimed.

According to Richard Woolnough, manager of the £1.2 billion M&G Corporate Bond Fund, the Bank of England's monetary policy committee (MPC) will have to go to greater lengths if they want to stimulate demand in the housing market.

His comments suggest that first-time buyers might be best to forego their dreams in favour of renting in the immediate future.

"To stop the free-falling UK housing market, the Bank of England should do its part by deploying its biggest parachute as quickly as possible. A half point cut... helps, but from my perspective rates need to be reduced a lot more than this," Mr Woolnough said.

"Consumers must want to buy a house - they must perceive housing to be affordable."

Mr Woolnough advocates an interest rate cut to at least 3.5 per cent, which would equal the base rate between July and October 2003, the lowest since 1954.

However, he has also stressed that should this prove insufficient to ignite demand then further cuts would be necessary.

The MPC has previously been reluctant to reduce interest rates due to the pressures of inflation.
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