Speculation that Britain’s mortgage rate frenzy may have finally reached its peak appeared on Thursday after the Bank of England signalled inflation should continue to fall this year.
“We expect inflation to fall further this year, to around 5%, and meet our 2% target by early 2025,” the central bank said, after lifting base interest by 25 basis points to 5.25%.
We expect inflation to fall further this year, to around 5%, and meet our 2% target by early 2025. https://t.co/fGooUBPP4w #MonetaryPolicyReport #inflation pic.twitter.com/5kWJc5qD0i
— Bank of England (@bankofengland) August 3, 2023
Given the bank’s ongoing battle to tackle high inflation through 14 rate rises in a row aimed at slowing price rises, hopes emerged that the optimism could translate to good news for homeowners.
“It might feel like madness to call,” AJ Bell personal finance head Laura Suter said, “but for consumers this could be peak interest rates”.
Lower mortgage and savings rates have already appeared, she pointed out, with better-than-expected inflation figures in June prompting lenders to price in less severe future base rate hikes to their deals.
“A few months ago we were expecting rates to peak at 6.5%, but expectations now are 6% or even 5.75%,” she continued.
Though any surprises where inflation rises month on month could indeed prompt mortgage rates to go up again, any shocks the other way could prompt further repricing, Suter added.
Barclays PLC (LSE:BARC), TSB Banking Group (LSE:TSB) and Nationwide Building Society were among lenders to announce cuts to mortgage rates last week on the back of better inflation expectations.