Rate rises may have ended . . . but don’t bet on it

Anyone who bet on the Bank of England base rate reaching five per cent or above by Christmas looks to have lost their money.

And the doom-mongers’ bubble looks to have burst with a hugely satisfying pop.

The rise in house prices was unsustainable and was going to result in tears, they said.

Interest rates would have to go on going up, homeowners would default on their mortgages and the market would come crashing down to earth with the velocity of a failed Chinese or European space satellite, they cried.

But it now looks increasingly likely the current rates cycle has peaked at a reasonably modest 4.75 per cent.

The consensus among economists (if indeed there is such a thing) is that the Bank of England will allay homeowners’ fears this week by pegging base rate for the third month in a row.

There are a number of reasons for thinking they are right.

First, the five quarter-point rises imposed by the monetary policy committee in the last 12 months finally look to have done the job they were intended to by bringing the housing market back down to earth softly and relatively painlessly.

Second, the MPC will probably want to study the all-important Christmas and New Year retail sales figures before taking the next step on base rate.

Third, there is growing speculation that Tony Blair could call a snap election as early as February (after making this correspondent look a chump by not going to the country this autumn).

Fourth, there are signs that economic growth looks increasingly sluggish.

John Butler, an HSBC economist was on record as saying at the weekend: “For now, with growth softer and consumer inflation benign, the Bank will feel it has time on its hands before it needs to act again.”

And the Press Association reported Investec’s Philip Shaw as saying a true economic down-swing had not arrived and rates may have a little further to rise early next year.

But in keeping with his business, David Buik of Cantor Index, the spread-betting firm that allows City wallahs to lose huge sums of money by plonking it down where their mouths are, has demanded that the Bank cuts base rate in the New Year.

Now that really would make a February election look a racing cert.

The interminable surveys beloved of financial firms keen to get their names in the papers yielded one gem yesterday.

It seems that “rate tarts”, the derogatory label slapped on folk with the financial savvy to make the system work in their own favour rather than the banks, are costing credit card providers a satisfying £1 billion a year in lost revenues by constantly switching between those offering zero per cent interest on transfers.

What’s the betting that providers suddenly discover the virtues of “customer retention” and quietly put zero per cent offers to sleep?

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