Steady interest good for Rock

Oct 18 2007 by Jule Wilson, The Journal

THE news that interest rates are to be kept on hold will come as a huge relief to struggling bank Northern Rock, according to financial experts.

Bank of England rate-setters voted overwhelmingly to peg interest rates at 5.75% in their first meeting since the Northern Rock banking crisis, it was announced yesterday.

The Bank’s Monetary Policy Committee (MPC) voted eight-one in favour of the move, despite calls for a quarter-point cut from committee member David Blanchflower, according to minutes of the meeting held two weeks ago.

The majority of members said an early cut would send a signal that the Bank was setting rates to ease struggling financial markets rather than fight inflation.

The minutes of the meeting stated: “It was possible that a cut in rates this month could be misinterpreted as a signal that monetary policy was focused on supporting the financial system and not on meeting the inflation target.”

Assistant director of Wise Speke investment management company Campbell Machlachlan said the decision to leave rates as they are would assist Northern Rock.

“The Monetary Policy Committee’s decision earlier this month to leave rates unchanged will have come as a huge relief to Northern Rock, which has been under immense pressure due to already high funding costs.

“The committee obviously considered cutting interest rates, though the data on inflation was not wholly supportive. The Bank of England clearly does not want to appear to be supporting the financial system, although Northern Rock will no doubt be hoping the door remains open to a possible cut next month.”

But economists yesterday cast doubt on the prospects for an early interest rate cut on the evidence of the MPC’s deliberations.

Global Insight’s chief UK economist Howard Archer said: “Although there are indications that the economy may be starting to lose momentum, there so far continues to be little, if any, evidence of a sharp slowdown.”

Figures yesterday revealed that shares in banking as a whole had begun to make progress after a disappointing couple of sessions.

Halifax Bank of Scotland’s share price rose 7.5p to 873.5p, Royal Bank of Scotland 17.5p to 532p and HSBC lifted 14.5p to 964p.

But the exception to the trend was Northern Rock, which fell 16p to 207.5p amid continued uncertainty over prospects for the group.

Mr Archer said: “While there is clearly a possibility of a November interest rate cut, we remain doubtful that the Bank of England will act that early unless there is a series of weak data releases over the next couple of weeks.

“Indeed, Bank governor Mervyn King in a speech last week appeared to downplay the prospects for a near-term interest rate cut.”

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Drop in number of mortgage products

THE number of mortgage products available has fallen by 40% during the past three months as lenders respond to the global credit crunch, a financial information group said yesterday.

Moneyfacts.co.uk said the fall in the number of different products to choose from was steepest in the sub-prime sector, as banks and building societies pulled home loans for people with poor credit histories.

But it said the mainstream lending market had not escaped the cull as lenders took a more cautious approach across the board.

The group said there had been a 54% drop in the number of different sub-prime mortgages available, with 4,371 different home loans withdrawn since July this year.

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Backed by MPs

THE Northern Rock Foundation has received fresh support from MPs across the country.

Some 11 MPs have now signed a motion celebrating the work of the charitable foundation and asking for it to be considered in any negotiations about the future of the Northern Rock bank.

The motion, tabled by Blaydon MP Dave Anderson, has won support from Northern Ireland to London, Kent, the Midlands and the South-West. North-East MPs Sharon Hodgson and Phil Wilson have also signed the early day motion.