Instant Access Properties

Today's decision by the Bank of England's monetary policy committee (MPC) to trim the base rate was not a hard one to call. The 0.25 per cent reduction was forecast by all seven economists polled by Adfero and all 60 quizzed by Reuters last week, plus 58 of the 61 interviewed this week by Bloomberg.

The questions those interested in property investment will ask concern two issues, how much the rate may fall and how much the present cut will help boost the market.

In terms of the second question, Howard Archer, chief economist at Global Insight, said the MPC was "unlikely" to follow the lead of the US Federal Reserve by slashing rates.

 The American central bank made separate cuts of 0.75 per cent and 0.5 per cent in little over a week recently in a bid to stave off recession. Such a move in Britain is not on the cards because growth here is stronger and the inflationary pressures are of some concern. "Instead, the Bank of England is likely to cut interest rates gradually but steadily," he commented.

In its statement today, the MPC emphasised that its role was "to balance the risk that a sharp slowing in activity pulls inflation below the target in the medium term against the risk that elevated inflation expectations keep inflation above target." This may have been a timely reminder that to allow a situation in which inflation could fall well below the two per cent consumer prices index target was no more laudable than letting it soar higher.

Yet if the cutting of rates is to be gradual, this seems to already have had a positive effect in some areas. Spicer Haart estate agents said the number of first-time buyers in January, the month after the previous cut, had risen by two per cent. Moreover, this group had accounted for a third of buyers in the month. On this basis, the group worst-hit by the high price inflation of recent years - which according to Halifax figures in December had priced the average new buyer out of the average property in 466 of 483 towns - could be leading the recovery in the market.

The news is certainly good for those already on tracker mortgages, with Council of Mortgage Lenders director general Michael Coogan pointing out: "This is good news for the quarter of UK borrowers on tracker rates who will see an imminent reduction in rates." However, he noted, not all those on standard variable rates would get this benefit.

As it happens, several lenders - such as Woolwich, Abbey and Halifax - have already announced they are passing on this reduction. But the longer term strength of the boom remains to be seen, not least as banks may remain wary of new lending. However, lower rates could give the all-round confidence boost needed to oil the wheels. The details of the February inflation report and the size of the majority in favour of the cut this month - which will be revealed when the minutes are released - may give an indication of when another reduction might take place.