House price fall prompts call for interest rate cut
The UK’s largest mortgage lender has called for interest rates to be cut after its figures revealed a fall in house prices in February.
Halifax says prices fell by 0.3% during February, bringing the average price of a home in the UK to £196,649.
On an annual basis, prices were actually up 4.2% last month from February 2007 - meaning the average home owner has seen the value of their property increase by around £4,390. But Halifax predicts that prices will remain flat in 2008 as a result of poor market conditions.
The figures back up recent research from Nationwide that also shows a fall in house prices in February.
Halifax is now calling on the Bank of England’s Monetary Policy Committee (MPC), which meets later today, to vote for an interest rate cut. It says lower rates are needed to support the economy as well as the housing market.
The MPC last cut rates in February. Despite hopes that more cuts could be forthcoming, key members of the Committee have hinted they will freeze rates because of fears that inflation is set to rise sharply in the short-term.
Martin Ellis, chief economist at Halifax, said: "While the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices. Nationally, we predict that house prices will be flat in 2008."
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).