It seems highly unlikely that the Bank of England will cut rates tomorrow after inflation rose 2.6% in November.
A shadow of doubt had already been cast over a base rate cut after data released yesterday showed wages had risen 5.2% over the past year, which was higher than expected.
But news that the consumer price index, which measures the rise in prices of goods and services over the year, stood at 2.6% – well above the Bank of England’s (BoE) target of 2% – has increased the likelihood that the interest rates will be maintained. tomorrow at 4.75%.
It is the second month in a row that inflation has risen. In October it rose by 2.3% and today’s figure is the highest since March.
With two consecutive hikes above the target level, the central bank is now expected to try to control inflation by keeping interest rates at the current level of 4.75%.
David Hollingworth, Deputy Director at L&C Mortgages said: “While it is difficult to view today’s figures as good news, the increase on the positive side is in line with forecasts.
“This should help prevent negative consequences for mortgage rates, which could result from the additional pressure of a higher-than-expected increase.
“Any hopes of a further cut in the base rate tomorrow appear to have already been dashed by yesterday’s strong wage growth figures.
“As a result, market interest rates rose slightly because there was the prospect that inflation would remain more persistent than expected. On a more positive note, the fact that core inflation has not risen as much as forecast will help counter this.”
What consequences does rising inflation have for your mortgage?
The BoE’s tactic to reduce inflationary pressures is to keep interest rates higher and therefore inflation has a knock-on effect on certain mortgages.
For those locked into a fixed rate deal, nothing will change as your repayment price will remain the same. If you use a tracker or variable rate, you may be more disappointed by today’s news, because no change in interest rates means no change in your mortgage rate.
But experts are still convinced that further rate cuts are likely in 2025 – although these are unlikely to be significant.
Hollingworth said: “Mortgage lenders should not expect much change because of today’s figures. Further cuts to the base rate are expected next year, but the Bank of England has consistently said these cuts are likely to be slow and steady. Today’s figures do not suggest that the trend is about to change.”
Do you have to wait for interest rate cuts before you can take out a mortgage?
For those about to take out a mortgage or remortgage, it may be tempting to wait for interest rates to fall further. But is this the best decision?
Pete Mugleston, MD and mortgage expert at www.onlinemortgageadvisor.co.uksaid: “For anyone considering their next step, whether it’s a new mortgage or buying a home, planning ahead is crucial.
“A deal now could provide much-needed certainty in light of the uncertain inflation forecast for 2025. Both homeowners and first-time buyers should consult a mortgage expert to explore options and lock in competitive rates while they are available.
“The most important thing is that we should not wait for inflation or interest rates to ‘stabilize’; instead, act decisively to secure your financial future.”