One of the leading mortgage brokers in the country foresees an increase in the Bank of England base rate next month, followed by another in September. Despite the recent drop in inflation rates, the forecast from John Charcol remains pessimistic. The figures surpassed market expectations, indicating a more significant reduction in headline inflation to 7.9 per cent in June, down from 8.7 per cent in May. Nonetheless, Charcol’s mortgage technical manager, Nick Mendes, highlights that core inflation, a crucial determinant of swap rates, also declined to 6.9 per cent.
“Core inflation, which the Bank of England is aiming to reduce, remains at its highest level in almost three decades. This indicates the likelihood of further rate increases in August and possibly September.
Among the G7 nations, the UK currently experiences the highest inflation rate. However, there’s hope that this signals the beginning of a decline towards the government’s target to halve inflation to 5.0 per cent by year-end.
While predicting market reactions is challenging, this development may positively impact future forecasts and stabilize recent fluctuations in fixed rates. Although substantial decreases in fixed rate pricing may take a few months, mortgage holders uncertain about their next steps are advised to consult with a broker or lender for guidance.”
Most experts share the same view, particularly regarding the possibility of another rate hike during the Bank of England’s monetary policy committee meeting in early August.
Charles White-Thomson, CEO of Saxo UK, points out that the 7.9 per cent year-on-year UK inflation indicates the effectiveness of significant financial measures, such as interest rate hikes. However, it still falls far from the target of 2.0 per cent, and the cost of living crisis remains evident. White-Thomson anticipates a 25bp hike by the Bank of England in August.
Chris Druce, senior research analyst at Knight Frank, highlights that the Bank of England has implemented 13 consecutive base rate increases since December 2021 to tackle inflation, bringing it to 5.0 per cent and driving borrowing costs to a recent high. This has resulted in reduced buying power, dampened sentiment in the UK property market, and constrained activity.
Buyers may still feel anxious and uncertain until they can assess the new peak in the bank rate, enabling them to plan ahead. The recent drop in inflation is significant but only a part of the ongoing process.
Kevin Pratt, a personal finance expert at Forbes Advisor, acknowledges the positive developments in falling energy prices and reports of peaked food inflation, along with the Business Secretary’s push for lower petrol prices. However, the Bank of England is likely to focus on core inflation, excluding food and energy costs due to their volatility. Unfortunately, this figure only saw a modest shift in June, declining from 7.1 to 6.9 per cent due to wage increases, and this could impact the Bank Rate decision in August.
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