Inflation in the UK has fallen below expectations, reaching 1.7% in September, sparking discussions on potential interest rate cuts.
- This marks the first instance of inflation dropping below the Bank of England’s 2% target since April 2021.
- Economists anticipate a possible interest rate cut in November, with another cut likely by the end of the year.
- The situation has been compounded by stagnant mortgage rates due to volatility in the swaps market, despite lower inflation.
- Experts advise caution as mortgage rates might not fall immediately following potential Bank Rate cuts.
Consumer Price Index (CPI) inflation in the United Kingdom has seen a notable decline, dipping from 2.2% in August to 1.7% in September. This drop positions inflation below the Bank of England’s 2% target, a level it had not fallen beneath since April 2021, suggesting possible forthcoming interest rate reductions.
Lindsay James, an investment strategist, highlights that the current economic conditions appear favourable for a Bank Rate cut in November, with the possibility of an additional cut in December. The Bank of England, within its measured trajectory of interest rate adjustments, may lean towards a more significant reduction if favourable economic indicators persist.
Consequently, the potential for interest rate cuts has been accentuated by the moderation in core inflation, which declined from 3.6% in August to 3.4% in September. This easing aligns with the Bank of England’s broader objectives, although mortgage rates have not shown immediate responsiveness due to ongoing fluctuations within the swaps market.
While the Bank of England appears poised to enact a 25 basis points rate cut in November, experts caution that this might not translate into lower mortgage rates in the near term. Factors influencing mortgage rates transcend the Bank Rate, with the swaps market, influenced by investor uncertainties regarding the upcoming Budget, playing a pivotal role.
According to Luke Bartholomew, deputy chief economist, the latest figures indicate a secured path to interest rate cuts, with the Bank likely observing the Budget’s impacts before accelerating its easing course. Additionally, the easing of inflationary pressures could offer relief amid anticipated fiscal austerity measures, providing a welcome respite for consumers and businesses alike.
The decline in inflation presents a conducive environment for Bank of England interest rate cuts, though mortgage rate impacts remain uncertain.
