January 18

Inflation Worries: Impact on Rate Cut Expectations


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An analyst, Sarah Coles, Head of Personal Finance at business consultancy Hargreaves Lansdown, highlights the current challenges in the real estate market. The threat of rising inflation, compounded by the recent Red Sea shipping attacks, has quashed speculations about potential Bank of England base rate cuts. The repercussions were felt in the mortgage sector, with rates reaching a peak in August, creating difficulties for borrowers to secure the necessary funds.

During this period, the housing market experienced a significant slowdown, compelling many sellers to slash their property prices to facilitate transactions. Despite the decline in property prices, buyers remained hesitant, contributing to a subdued market. The November RICS survey underscored the scarcity of buyers, indicating a continued sluggishness in the real estate sector.

Despite the persisting challenges in the property market, a small glimmer of hope has emerged with the continued decline in mortgage rates. According to Moneyfacts, the average two-year rate has recently fallen to 5.62%, marking a noteworthy one-percentage-point decrease over the past four months. Even prominent lenders are now offering rates below 4.0%, fostering the potential for a modest surge in demand when the figures for December and January are reported.

However, sellers are urged to exercise caution and temper their expectations. The unexpected rise in inflation this week, escalating from 3.9% to 4.0%, coupled with apprehensions regarding oil prices and disruptions in the supply chain due to conflicts in the Red Sea, may act as deterrents to further reductions in mortgage rates. As uncertainties persist, the trajectory of the property market remains intricate, necessitating a measured approach for both sellers and buyers.

Considering the complex risks confronting the world economy and the precarious state of the UK’s economic landscape, the property market appears poised for challenging months ahead, and these challenges may extend into 2024. The looming uncertainties are reinforced by recent government data indicating a 2.1% decline in average house prices across the UK in the year leading up to November. This marks the third consecutive month of falls, following a 1.3% drop in October. As we navigate a delicate economic environment, the property market could encounter further price declines, adding to the intricacies that define the real estate landscape in the coming year.

In the face of these economic headwinds, buyers and sellers alike may find themselves navigating a market characterized by fluctuating dynamics and heightened caution. The consecutive months of declining house prices underscore the need for a cautious approach to property transactions in 2024. Investors and homeowners should carefully evaluate the evolving economic landscape and consider strategic decisions as they engage with a real estate market that shows signs of increased volatility and uncertainty.

The latest data reveals a notable decline in average house prices, marking the most rapid annual drop since 2011. On a seasonally adjusted basis, prices experienced a 0.4% month-on-month decrease, resulting in an average house price of £285,000 – a £6,000 decrease over the past year. The regional breakdown indicates varied house price movements, ranging from a 0.4% decline in the North East to a more substantial 6.0% fall in London. Despite London maintaining the highest average price at £505,000, the city witnessed its swiftest annual fall since 2009, underlining the broader market challenges.

Across all property types, there was a general decline in prices, with terraces experiencing a 3.8% decrease and flats seeing a 1.8% drop. This comprehensive reduction in property values underscores the widespread impact on various segments of the housing market, reflecting the complex dynamics influencing the real estate landscape.


Bank of England, Housing Market UK, Interest Rates UK, Red Sea Inflation

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