The Consumer Prices Index (CPI) showed today the cost of goods and services has risen by 1.7% over the year to September. Economists had been expecting it to fall to 1.9% from the 2.2% recorded in August.
Inflation is a good indicator of what might happen to interest rates. The Bank of England (BoE) employed its cycle of raising rates in a bid to bring inflation down after it reached a 41-year high of 11.1% in November 2022.
So, the fact it has dropped below the target should mean the central bank will have an incentive to reduce interest rates, which are currently at 5%.
Rachael Hunnisett, director of mortgage distribution at April Mortgages, said: “Inflation dropping below the Bank of England target should be good news for Britain’s borrowers and the broader property market.
“The fact that headline CPI came in well below consensus will be music to the ears of borrowers.
“Following on from slowing wage growth on Tuesday, it has put the prospect of another rate cut in November by the Bank of England firmly back on the table.”
But she warned market volatility means a cut to the base rate was not entirely set in stone.
“The past fortnight or so has once again shown how volatile markets are,” she continued, “with many lenders raising their rates to reflect market concerns around both the oil price and Autumn Budget.”
Last week some lenders increased mortgage rates in line with rising swap rates leading to suggestions the era of mortgage cuts might be coming to an end.
How will the forthcoming Budget impact interest rates?
But it is the looming budget, on Wednesday 30 October, which is introducing an element of doubt for most experts over whether an interest cut is a certainty in November. The outcome of Chancellor Rachel Reeve’s first Budget is likely to be final deciding factor for the Monetary Policy Committee at the Bank of England.
Nicholas Mendes, who is technical manager at John Charcol mortgage brokers, said: “There are still uncertainties surrounding the upcoming budget and today’s announcement is unlikely to lead to an immediate drop in swap rates or significant shifts in headline best-buy mortgage rates, following recent repricing from lenders such as NatWest and Santander.
“In the coming weeks, following the budget attention will turn to the Bank of England’s Monetary Policy Committee (MPC) meeting and the governors notes on the 7th of November. These will provide critical insights into the Committee’s views and the potential trajectory of future interest rate decisions.”
What to do if you are due to remortgage?
He added: “If you’re approaching the last six months of your fixed-rate mortgage, now is the time secure a new deal. Continuously review the market, or better yet, use a broker who can monitor it for you and advise when a better deal becomes available.
“While nothing is guaranteed, and various factors may delay the passing on of rate reductions, it’s important to take proactive steps to secure the best deal, rather than adopting a ‘wait and hope’ approach.”
