A shadow of doubt had already been cast over a cut to the base rate after data released yesterday showed wages had increased by 5.2% over the year, which was higher than expected.
But news the Consumer Prices Index, which measures the rise in the price of goods and services over the year, was at 2.6% – well above the Bank of England’s (BoE) target of 2% – has increased the odds interest rates will be held at 4.75% tomorrow.
This is the second month in a row inflation has climbed upwards. In October it rose by 2.3% and today’s figure is the highest since March.
With two consecutive increases above the target level, it is now expected the central bank will attempt to bring inflation under control by holding interest rates at their current level of 4.75%.
David Hollingworth, Associate Director at L&C Mortgages said: “Although it’s hard to view today’s figures as good news, on the brighter side, the hike is in line with forecasts.
“That should help to avoid negative repercussions in mortgage rates that could have resulted from the added pressure of a higher-than-expected jump.
“Any hopes for a further cut to base rate to come tomorrow look to have been dashed already by yesterday’s strong pay growth figures.
“That saw market rates edge up a little at the prospect of inflation remaining stickier than expected. More positively, the fact that core inflation rate hasn’t risen by as much as predicted will help counter that.”
How will inflation rising impact your mortgage?
The BoE’s tactic for reducing inflationary pressure is keep interest rates higher and therefore inflation does have a knock-on effect to certain mortgages.
For those locked into a fixed-rate deal – nothing will change as your repayment price will remain the same. If you are on a tracker or variable rate you may be more disappointed by today’s news as no change to the interest rate will also mean no change to your mortgage rate.
But experts still believe there are likely to be more interest rate cuts in 2025 – although they are unlikely to be significant.
Hollingworth said: “Mortgage borrowers shouldn’t expect to see much change because of today’s figures. Further base rate cuts are expected next year but the Bank of England has played a consistent line that those reductions are more likely to be slow and steady in pace. The figures today do nothing to suggest that line is about to change.”
Should you wait for rate cuts to take out a mortgage?
For those about to take out a mortgage or remortgage it might feel tempting to wait for rates to fall further. But is this best decision?
Pete Mugleston, MD and mortgage expert at www.onlinemortgageadvisor.co.uk, said: “For anyone considering their next move, whether remortgaging or buying a home, planning ahead is crucial.
“Securing a deal now could provide much-needed certainty in light of an uncertain inflation forecast for 2025. Homeowners and first-time buyers alike should consult a mortgage expert to explore options and lock in competitive rates while they’re available.
“The key takeaway is not to wait for inflation or interest rates to ‘settle’; instead, act decisively to safeguard your financial future.”
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