Bombing fallout may prompt interest rate cuts

PUBLISHED : Wednesday, 27 July, 2005, 12:00am
UPDATED : Wednesday, 27 July, 2005, 12:00am

The latest round of bombings in London is expected to sour the falling property market in Britain in the short term but may prompt the central bank to introduce interest rate cuts sooner than expected to revive consumer activity, according to analysts.

Last week, four small bombs failed to detonate properly on three London Underground trains and a bus, in a repeat of an attack that hit London two weeks earlier, in which 56 people died.

Althought last week's attack resulted in only one casualty, confidence has been shaken.

Milan Khatri, chief economist at the Royal Institution of Chareterd Surveyors, said the attacks would exert pressure on falling prices in London.

He added that the terrorist attacks might force Britons to further tighten their purse strings.

People were increasingly worried about the country's economic prospects, spiralling debt and the health of the housing market this year, he said.

However, this drop in confidence might affect a decision by the Bank of England when it next reviews interest rates, and this could benefit the housing sector.

'In the United States, the Federal Reserve aggressively cut interest rates after 9/11, which counteracted the impact of those attacks,' Mr Khatri said.

London's residential property market has been slipping downwards in recent months.

Figures from Halifax Bank, the country's biggest mortgage lender, showed its measure of average house prices (based on agreed on sales reported by estate agents) dropped 0.2 per cent this month from a month ago after the same monthly fall last month.