Is inflation rate low enough to end the streak of bank rate rises?
Considering the recent dips in the annual inflation rate, the Bank of England (BoE) has decided to hold off on further increasing the base rate, which stays at 5.25% for now, by a majority of 5-4.
The streak of 14 consecutive interest rate hikes ended on Thursday, amid calls from business groups and economists for the central bank to hit the brakes on fiscal tightening to boost the weakened economy.
While many experts still predicted a rate increase this month, a significant number adjusted their expectations following yesterday’s consumer price index announcement, which revealed a fall in annual inflation to 6.7% in August.
No longer as eye-watering as the four-decade-high inflation rate less than a year ago, the current inflation rate was something that the BoE’s Monetary Policy Committee (MPC) might have kept in mind in reaching today’s base rate decision.
“Yesterday’s inflation announcement eased some of the pressure on the Bank of England decision making on whether to continue increasing interest rates,” Nicholas Mendes, mortgage technical manager at John Charcol, commented.
“Core inflation, which the Bank of England pays close attention to, fell to 6.2% from 6.9%. Moments after yesterday’s inflation announcements, market expectations of a rate rise began to plummet, from what was an 80% certainty of a further rate hike down to an equal split. A nice change compared to recent months when you could be certain of the MPC announcement at the beginning of the month.
“There has been a steady decline in swap rates in recent days, which has resulted in many lenders reducing rates on both residential and BTL products, which is welcome news for mortgage holders.
Whether today’s hold is a sign of future long-term direction remain to be seen.”
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