In times of uncertainty and trouble, investors look towards the Bank of England for guidance and assistance. This is a characteristic of the UK investment market with real estate perhaps having the most to gain or lose from changes in fiscal policy. We can only guess how investors felt earlier this week as the Bank of England monetary policy committee appeared to give contradictory opinions to the wider press.
While the Governor of the Bank of England Mark Carney has been willing to discuss the potential issue of negative inflation in great detail, there is some controversy over how this will impact UK base rates in the short to medium term.
Is the Bank of England too transparent?
There is no doubt that the Bank of England is not only the lender of last resort in the UK but also the guiding light in difficult economic times. The decision to separate the Bank of England from the UK Treasury some time ago has given greater transparency although some experts now believe it may be too transparent. We are used to the monetary policy committee casting their vote and then reading the minutes of each meeting at a later date but should they be speaking to the press as individuals or should they be speaking collectively?
The whole idea of the monetary policy committee is to allow a number of opinions to come together and a consensus opinion to be gathered. While initially Mark Carney was talking of potentially negative inflation and a possible reduction in UK base rates, some members of the committee are now suggesting base rate could equally move higher in the short term. It will be interesting to see how this pans out for the UK property market which has enjoyed something of an Indian summer in recent times.
Uncertainty and investment markets
If all members of the monetary policy committee were of the opinion that base rates would rise, fall or remain constant for the foreseeable future, then investment markets and investors would be able to factor these into asset valuations and prices. However, when we have some members of the committee suggesting rates could fall, some suggesting rates could rise and others predicting 0.5% base rates for some time to come, who do you believe?
When you also consider that the UK property market has performed admirably in recent times perhaps this could be a signal to take short term profits and see what happens in the future?
Further problems within Europe
Deflation is a problem which very few people will experience in their lifetime but one which can have a material impact upon real estate prices and perhaps more pertinently rental rates. When you also factor in the ongoing problems within Europe and the weak Euro there are certainly reasons to at least consider banking a profit on UK property. The fact that the UK real estate market is seen by some as a “safe haven” because of the UK government’s reluctance to take up the euro there may well be support if prices were to come under significant pressure.
All in all could you argue with anybody suggesting it may be time to take profits on UK property? When you take into account problems within Europe and conflicting opinions from the Bank of England monetary policy committee the short term may not be as easy to predict as many would have hoped?