House builder warns on house prices
The CEO of a major housing development company has called for further interest rate cuts, stating that house prices are likely to remain flat for the next eighteen months, and adding that the interest rate cuts are necessary in order to support the market. The Chief Executive of Barratt Developments has forecast a tough year and a half ahead, with buyers and sellers delaying deals due to flat house prices.
Mark Clare stated: ‘I am expecting something like flat prices for the full financial year, and I wouldn’t assume it would be very different in the next financial year. It depends on what happens in the markets.’
He said that conditions had improve a little as a result of the two interest rate cuts, following a particularly difficult period in the last six months of 2007, following the Northern Rock crisis and the onset of the Global credit crunch.
He added that the predicted interest rate cuts that are likely to be applied this year will help to ease the problem, stating: ‘The indications are fairly strong that we will see further interest rate reductions in the future and that can only help.’
However, although many industry professionals have predicted that there will be a number of interest rate cuts this year, with one already having been applied in February, the governor of the Bank of England, Mervyn King, recently said that interest rates would not fall a quickly or by as much as many had predicted.
The Bank of England has to take inflationary pressure into consideration as well when deciding on interest rate movement, and therefore the decision on whether to cut rates or not is a difficult one that involves balancing the risks of a slowing economy with the risks of further inflation rises.
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