Inflation is falling, but will the Bank of England still raise the base rate?

Despite the fall in inflation, are we still heading for a further base rate increase?

Is this the final raise?

recent poll conducted by Reuters suggests the Bank of England will increase rates by a further 0.25% next month to 4.25%. The increase is expected to be the final rate increase from the Monetary Policy Committee (MPC) to combat the double-digit inflation figure.

Philip Shaw, Chief Economist at Investec had this to say about the forthcoming rate announcement due on the 23rd March:

“Our baseline case is that the MPC will increase the Bank Rate by a further 25 bps to 4.25% next month as an insurance policy against firmer inflation pressures stemming from the tight labour market.”

Inflation is easing

But the cost of living crisis continues

Inflation has eased with December showing 10.5% with January’s figure now confirmed at 10.1%, whilst this has slowed faster than many had expected it is still well above the Government target of 2%.

The Reuters poll suggested that two thirds of respondents did not expect the cost-of-living crisis to ease for at least another 6 months. Consumers are now battling with increased borrowing costs, high energy prices and increased food costs.

UK avoids falling into a recession

Economy expected to grow next year

The economy did however avoid a technical recession avoid albeit narrowly. The Reuters poll suggests the economy is expected to contract a further 0.4% in each of the first and second quarters and then reduce 0.1% in the 3rd.

“We do still think that the impact of the real income squeeze, ‘bad inflation’ – food, energy and rents/mortgages – and the 390 bps of monetary tightening we have had in just over a year, will weigh on growth in H1 (first half of) 2023,” said Elizabeth Martins, an economist at HSBC.

The UK economy will end this year 0.8% smaller than it started 2023, the poll showed, and then expand 0.8% next year.

What does it mean for your mortgage in 2023?

Sat Singh, Executive Director at Cleerly commented on the economic forecast:

“Most lenders have already priced-in expected base rate increases. Lenders base the rates they lend at on swap rates, which reflect the cost to the banks of borrowing funds to lend out. Swap rates are based on market sentiment and therefore future base rate movements are factored in well before the MPC announcements are made.”

“We are seeing improvements in interest rates on offer and I would strongly recommend engaging with a specialist mortgage broker as soon a possible. A good broker will be able to secure you a rate but continue to monitor the market and switch you across to any lower options if they become available.”

We're confident we can help you

If you are looking at a new purchase or to remortgage at the end of your current deal, speak with one of the Cleerly team as soon as possible.

The advice may be to hold tight, but 10 minutes of your time could help form a plan that could save you a lot of money and time in the future.

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