Interest rates may drop, whatever today’s Bank of England decision

Slowing inflation may - just may - lead the way for reduced interest rates.

The headline inflation rate is now just 3.4%, the lowest for two years; and today at noon the Bank of England’s monetary policy committee announces its decision on base rate.

Ben Thompson, deputy CEO at Mortgage Advice Bureau, says: “Inflation in February being just 1.4% above the Bank of England’s 2% target could be the starting gun we’ve been waiting for, in terms of getting clearer visibility on exactly when base rate may start at last to come down. 

“The last month has seen volatility in swap rates, with some lenders increasing their mortgage rates as a consequence. 

“However,  with inflationary pressures now easing, this could lead to an easing in swap rates and therefore the start of mortgage rates softening again. If this happens, it would be perfectly in time for the busy period of year for the housing market, and would also help many thousands of borrowers to re-mortgage to better rates once their current deals have come to an end.”

Simon Gammon, managing partner at Knight Frank Finance, comments: "The drop in inflation may even pave the way for a spate of cuts to mortgage rates during the coming fortnight.

"That said, these cuts will be pretty marginal. We don't expect mortgage rates to begin falling more meaningfully unless we see an outsized drop in the annual rate of inflation during the next two releases, or until the Bank of England begins cutting the base rate.”

Nicholas Hyett, Investment Manager, Wealth Club, wades in with this: “After a brief blip, the UK is back on the disinflationary slide.

“That, together with the news the economy fell into recession at the back end of last year, will make it easier for the Bank of England to consider rate cuts  - though we still think central bankers will ultimately choose to leave rates unchanged in March.

“Inflation may be moving lower, but it's still some 70% above target. The recent fall is being driven largely by global food prices, which could prove highly volatile, and core inflation remains higher - although it too is falling.”

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