CPI

Bank of England Reductions

This year the Bank of England (BOE) has reduced rates by 0.25% for the third time since the all time low of 0.1% in January 2022 to 4.5%. Now inflation has settled around the target of 2.00%.

Rates were previously held at 4.75%.

With inflation around 2.5% it spurred the Bank of England to reduce rates for the third time after 15 previous consecutive rate rises (7-2). With 2 members voting for to cut rates to 4.25%?

The Bank of England says it expects the UK economy to grow by 0.75% in 2025, down from a previous forecast of 1.5%.

CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison. Services consumer price inflation has declined to 4.9%. Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August. Headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year. The MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.

There was a bit of a shock in the Bank?s quarterly Monetary Policy Report today when it said inflation will spike to 3.7% later in 2025.

Apparently there’s been a colder than expected winter in Europe, which has driven demand for natural gas and hiked up prices. Which will impact Ofgem?s energy price in a few months? time.

Mortgages

Central banks around the world have put up borrowing costs to bring down inflation. The European Central Bank recently reduced its main interest rate by 0.25 percentage points to 2.75 per cent and US Federal Reserve held rates at 4.5% with recently elected president Donald Trump.

For the 629,000 homeowners on tracker deals that move in line with the base rate, there will typically be a ?29 fall in monthly repayments, according to figures from banking trade body UK Finance.

The 693,000 people on the standard variable rate will need to wait for the response of their lender.

However, if their provider matches the base rate fall, typically they will pay ?17 less a month.

If you have a fixed mortgage deal, the rate you pay monthly in interest is fixed until the deal expires, so there’ll be no immediate change.

But the markets, and lenders will consider the chances of future interest rate cuts and mortgage providers may reprice deals for new and renewing customers accordingly.

Further rate reduction in March?

Financial markets have pencilled in another reduction in March, provided inflation continues to settle around 2.00%.

What are your thoughts on the Bank of England rate reductions?

Bank of England Reductions

This year the Bank of England (BOE) has reduced rates by 0.25% for the second time in 34 months since the all time low of 0.1% in January 2022 to 4.75%. Now inflation has settled around the target of 2.00%.

Rates were previously held at 5.25% for nearly 12 months.

Although inflation was 2% in May and June, it rose slightly to 2.2% in July and is not predicted to dip back below target until at least 2026.

With inflation around 2.2% it spurred the Bank of England to reduce rates for the second time after 15 previous consecutive rate rises (8-1)?

CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison. Services consumer price inflation has declined to 4.9%. Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August. Headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year. The MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.

Industry experts estimate that over 40% of mortgages will reduce over the next year, so more people will have the minor relief of slightly lower monthly payments.

As the central bank battles a slowing economy, the ever-tightening cost of living crisis and rampant inflation, here’s how that affects your mortgages and house prices.

Mortgages

Central banks around the world have put up borrowing costs to bring down inflation. The European Central Bank recently reduced its main interest rate by 0.25 percentage points to 3.50 per cent and US Federal Reserve held rates at 5.5% with recently elected president Donald Trump.

Most economists support such efforts to bring down inflation, but there are growing calls for restraint as economies head for recession and unemployment levels rise, depressing business and consumer spending without the need for further interest rate rises.

Debt charities urged the government to provide further subsidies for low-income households after an increasing number had turned to high-cost credit to keep afloat. The increase in borrowing costs will push up mortgage costs will naturally push up rental costs where the property is owned by landlords.

In addition to raising interest, the MPC also signalled that it would tighten policy accelerating the unwinding the money-creation process known as quantitative easing.

Between 2009 and the start of the pandemic in 2020 the Bank bought £895bn of government and corporate bonds in an attempt to support the economy but is now planning to sell bonds at a rate of £10bn a quarter over the next year.

Further rate reduction in December?

Financial markets have pencilled in another reduction in December, provided inflation continues to settle around 2.00%.

What are your thoughts on the Bank of England rate reductions?