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Rate rises in August AND September despite inflation drop - forecast

One of the country’s leading mortgage brokers predicts a rise in the Bank of England base rate next month - and yet ANOTHER in September. 

The grim forecast comes from John Charcol, even after figures yesterday showing the headline rate of inflation dropping to 7.9 per cent in the year to June - the fall was greater than expected and was down from 8.7 per cent in May.

But Charcol’s mortgage technical manager Nick Mendes says: “The latest figures exceeded the market forecasts of a reduction to 8.2 per cent and core inflation - a key influencer on swap rates - was also down to 6.9 per cent.


“Core inflation remains close to a 30 year high, which is the area the bank of England are targeting to bring down so we can should still expect more rate rises in August and potentially September.

“The UK has the highest inflation amongst the G7 countries, but hopefully this marks the start of a downward trend and towards the government target to half inflation to 5.0 per cent by the end of the year.

“While it’s difficult to pre-empt market reaction, this will hopefully have a positive impact on future market forecasts, and a calming to the recent volatility in fixed rates. It will take a few months before we see any substantial decreases in fixed rate pricing, the advice will be for mortgage holders unsure on their next move to speak to broker or their lender.”

Most other analysts feel the same way - at least about the likelihood of one more rate rise when the Bank of England monetary policy committee meets in early August.

Charles White-Thomson, chief executive of trading service Saxo UK, says: “Year-on-year UK inflation of 7.9 per cent is … evidence that the significant financial medicine in the form of interest rate hikes is taking effect. The big number of 7.9 per cent is still well off the ‘no ifs or buts’ 2.0 per cent target and the cost of living crisis remains painfully evident. We should prepare for a 25bp hike by the Bank of England in August.”

Chris Druce, senior research analyst at Knight Frank, comments: “13 consecutive base rate rises by the Bank of England since December 2021 to tame inflation has taken us to 5.0 per cent and pushed the cost of borrowing to a recent high. This has reduced buyers’ spending power, weakened sentiment in the UK property market and acted as a drag on activity .

“Nerves are unlikely to be calmed and the outlook improved until buyers’ can gauge where the new peak in the bank rate will be, allowing them to plan accordingly. Today’s fall in inflation is therefore important but a step on a journey that’s not yet complete.”

And Kevin Pratt, personal finance expert at Forbes Advisor adds: "Hard-pressed consumers and mortgage holders … might have heard the good news about the falling energy prices, seen reports that food inflation has peaked and watched the Business Secretary demand supermarkets cut the price of petrol and thought a corner has been turned. And in some ways it has. 

“But the Bank of England’s main focus is likely to be the measure of inflation that strips out food and energy costs because of their inherent volatility - and this core figure shifted more modestly in June, edging down from 7.1 to 6.9 per cent on the back of wage increases. This doesn't auger well for the August Bank Rate call.”

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    Muppets still trying to predict the unpredictable.
    We forgive weather forecasters, but these guys, come on!
    I hope the Bank of England do nothing. Most economists believe it takes 12-18 months for an interest rate rise to affect inflation. Therefore the rises that took place last year are now starting to affect inflation.
    The B of E were too slow to react to the situation before and left rates too low, they had compounded the situation by a final tampering of our economy by some extra quantitive easing which really had added to inflation. In fairness they did not know that Putin was going to invade Ukraine, though the signs were there. What the UK does not need is further rate rises to stifle the economy further, we did to grow.
    If rates come down again next month I would hope they have the balls to drop rates by 0.25%.
    Realistically mortgage rates need to be between 4-5% for a healthy economy. They have been too low for too long, so don't be surprised by my lack of faith in Mr Bailey!

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    Be an idea to do nothing at least for one month- august. Eh.


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