Personal Finance with Brian Tora

THERE ARE a few people who will be awaiting the publication of the minutes of this week's meeting of the Monetary Policy Committee with more than usual interest. How did the new member vote? The chances are he voted for a cut, given that is what they actually did.

If Mr Waohwani did vote for a cut, then he is not the most popular economist as far as I am concerned. I was banking on no change, and the chairman of Gerrard and King - our sister company - said that the cut was so obvious, taking bets from people like me was like taking candy from a baby.

My conclusion was based on the fact that mortgage lending had been rising sharply. We are so used to high interest rates in this country that once the cost of borrowing falls to 7 per cent or less we all rush out to buy a house. Property price rises average more than double that of inflation over the year so far. This is, though, largely a South-east phenomenon, so perhaps I am unduly influenced by where I live.

My colleagues' view was based much more on the strength of sterling. The MPC, when it last met, remarked on the strength of sterling and how concerned it was. I should have read those minutes more carefully. My view was that a strong currency is good for inflation, so since the MPC is charged with keeping inflation down, high sterling should not worry committee members unduly. But worried they were, so down came rates.

In America everyone is expecting rates to rise. The Fed has already announced fiscal tightening - a whisker away from increasing the cost of money. This time there seems no disagreement in the Square Mile. The question is merely how much rates will rise, with the traders in our group pointing to a 50 basis point hike likely to throw a very large bucket of water on the rational exuberance of markets. Our more contemplative investment managers are going for a quarter point rise.

Interest rates cuts are generally viewed as a good thing - and rises as bad. Not so for many people. Lower interest rates means lower returns on bank and building society deposits - still the largest home for investment and savings in the UK.

It also does not help gilts, although these owe more to supply and demand and likely long-term trends in inflation than to the short-term cost of money. But, as we all know, low returns in fixed-income markets have resulted in very low returns on annuities - and thus pensions.

Low interest rates may be a good thing for business, for exporters, for people who wish to buy a bigger and better house - and almost certainly for stockmarkets, but they are not necessarily beneficial for the many millions of people who derive the bulk of their savings income from bank and building society deposits. The answer is easy in my view. Find an alternative. In America mutual funds overtook the value of personal savings in the banking system many years ago. It is time the same happened here.

Brian Tora is the chairman of the Greig Middleton investment strategy committee

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