Bank of England should cut rates, says M&G’s Leaviss

Ahead of the Bank of England’s Monetary Policy Committee meeting on Thursday, M&G manager Jim Leaviss has called for further rate cuts.

The Bank’s overnight rate has remained at a historic low of 0.5% since March 2009, in order to guard against “substantial risks” to UK activity and inflation in the UK.

Leaviss argues that the decision by Halifax (HBOS) to raise its mortgage rate from 3.5% to 3.99% for £850,000 standard variable rate (SVR) mortgage borrowers reflects a need among banks to improve margins before they can increase lending.

He explains: “If the Bank of England cuts rates – to near zero – many of the funding costs that directly impact HBOS, including Libor and five-year interest rate swap rates would also fall. (article continues below)

“HBOS wouldn’t need to pass on these rate cuts to customers, but the mortgage borrowers are not worse off, and the banks have improved their margins.”

Leaviss admits the impact would be relatively small, but says that its effectiveness would be greater than that of a theoretically equivalent amount of quantitative easing.