UK inflation has dipped, raising questions about future interest rates and mortgage costs for homeowners and buyers
London: UK inflation dropped last month, surprising many analysts who thought it would stay the same. The Consumer Prices Index fell from 2.6% in November to 2.5% in December, according to the Office for National Statistics.
Even with this drop, inflation is still above the Bank of England’s target of 2%. This has economists and policymakers worried, especially since the economy isn’t growing much.
Chancellor Rachel Reeves is determined to improve living standards. She mentioned that there’s still a lot to do to help families manage their living costs. She’s committed to delivering growth across the UK.
Former Bank of England policymaker Michael Saunders noted that the government would likely breathe a sigh of relief over the unexpected dip in inflation. This comes at a time when the UK financial markets are quite shaky, with the pound’s value dropping and borrowing costs hitting decade-highs.
A drop in inflation could lead to lower mortgage rates, as experts believe the Bank of England might lower the base interest rate. Analysts are now discussing what this inflation drop means for interest rates and mortgages.
The Bank of England adjusts interest rates to control inflation. Alice Haine, a personal finance analyst, pointed out that while the recent inflation figure is encouraging, it might be short-lived, with inflation expected to rise again soon.
She added that many households are still feeling the pinch from years of rising prices. They’re hoping the Bank of England will act to lower borrowing costs for mortgages and debts.
Homeowners and first-time buyers might feel a bit more optimistic with this inflation news, as it raises the chance of interest rate cuts. However, the current interest rate is still above the Bank’s target, and it could rise again, leaving borrowers uncertain.
The average cost of new fixed-rate mortgages has been all over the place since the Budget, with lenders adjusting their rates based on changing expectations. If inflation goes up again, it could make things tougher for borrowers hoping for lower payments.
People looking to buy or sell homes are anxious to see when the next interest rate cut might happen. For now, borrowing costs are still high, and uncertainty in the mortgage market is making first-time buyers and current homeowners nervous about securing new deals.
Alice also suggested that anyone looking to get a new mortgage or refinance should consider working with an independent mortgage broker. With the gap between average rates for two and five-year fixed rates narrowing, deciding on the right option will need careful thought.
She warned that those with cheap fixed-rate loans from before the Bank of England started raising rates should prepare for higher costs when they remortgage.
Rachael Hunnisett from April Mortgages said that while the slight drop in inflation might give borrowers some hope, it doesn’t change the overall unpredictability in the economy.
She emphasized that the current uncertainty in the mortgage and property markets is likely to continue, leading to more fluctuations in interest rates.
Peter Stimson from MPowered Mortgages cautioned that things might get worse before they get better. He noted that even with the recent progress on inflation, the Bank of England is in a tough spot, needing to keep rates high to control inflation while wanting to lower them to boost the economy.
Jack Tutton from SJ Mortgages had a more positive take, suggesting that this small drop in inflation could be significant. He mentioned that while rates have been rising, lenders haven’t necessarily increased their mortgage rates in line with that, hoping the markets stabilize.
