The rate cut is likely to be followed by quantitative easing measures in coming months, yet to be fully outlined by the Bank. In its February Inflation Report, the Bank of England forecasts severe recession in 2009 with GDP expected to shrink 3% this year. Today's decision was widely anticipated as the economy is facing its worst recession since the early 1980s, with a significant chance that inflation could undershoot its 2% target.
UK residential property
James Thomas, Head of Residential Development and Investment at Jones Lang LaSalle comments,
"Today's decision to cut interest rates to 0.50% will be positive news to homeowners on variable rate mortgages, although lenders have indicated that they are unlikely to pass the full benefit on to borrowers. Given that banks have little appetite for new lending it will make little difference to homebuyers hoping to enter the market, whose main difficulty is actually securing a mortgage. The housing market is likely to remain weak given the continuing global economic turbulence, uncertainty in the labour market and shattered consumer confidence".
"Mainstream house prices are expected to fall by another 13-15% this year and a further 1-3% in 2010 before recovering in line with the pick-up in the economy. Economic activity is expected to stabilise next year, though this is dependent on the effectiveness of the policies now in places – fiscal policy, interest rate cuts, the package of banking support measures and an improvement in the availability of credit."
UK commercial property
Fergus Hicks, Head of Forecasting and Economics at Jones Lang LaSalle comments,
"Occupier demand for commercial premises is being hit hard by recession in the economy. Occupiers are reducing headcounts and implementing cost control measures, which means that expansion is off the corporate agenda. The recession is also forcing occupiers to dump secondary space back on to the market, deepening the downturn. We expect commercial rents to fall approximately 25% from their peak in early 2008 by end 2011."
"The investment market continues to suffer from a lack of credit and increased risk aversion by investors. We expect yields to peak this year before stabilizing in 2010 and reduce from 2011 onwards as credit markets gradually improve. A positive yield gap will make commercial property attractive at this stage."
