October’s inflation increase to 2.3% could put any chance of another Bank of England rate reduction this year “on the backburner”, industry participants suggest.
The increase from 1.7% in September to 2.3% in October was driven by higher household energy bills, as markets predicted it would.
Prior to today, it was widely expected that inflation in October would rise to between 2% and 2.2%.
In early November, the BoE cut the base rate by 0.25% from 5% to 4.75% with many hoping for another reduction before the end of the year. However, today’s inflation figure has led many to believe that this month’s cut will be the last of the year.
Bestinvest by Evelyn Partners personal finance analyst Alice Haine says: “The BoE made its second quarter-point rate cut earlier this month with many hoping for a follow-up in December. The prospect that the next rate reduction may now be put on the backburner until next year will be disappointing for consumers.”
“While the rate-setting Monetary Policy Committee is likely to consider other data points aside from the headline inflation rate when they deliver their next interest rate decision – such as the cooling jobs market and slowing economic growth in the third quarter of the year – Labour’s spending and tax plans in the October 30 Budget have thrown a spanner in the works.”
“The BoE has already warned that Chancellor Rachel Reeves’ changes may push up the cost-of-living with major businesses also wading in to raise the alarm over the effect hikes in business taxes will have on inflation.”
Last week, Bank of England Governor Andrew Bailey addressed the importance of carefully timing future rate cuts.
Raymond James Investment Services European strategist Jeremy Batstone-Carr comments: “As a result, financial markets ascribed a mere 20% chance of a 0.25%-point cut before Christmas. It’s yet too early to determine the impact of Rachel Reeves’ Budget measures on inflation, but what is likely is that the Bank will adjust interest rates only at a very gradual pace in the foreseeable future.”
Mortgage Advice Bureau deputy chief executive officer Ben Thompson suggests that inflation rising “isn’t the best start to the festive season for those looking to remortgage or get onto the property ladder”.
Thompson adds: “With inflation rising, and the Bank of England signalling its restraint in cutting the interest rate, it is possible that mortgage rates could stay higher for longer.”
However, he highlights that the good news is “we’re nowhere near the highest levels of inflation and mortgage rates seen in the past two years. There remain good deals to be had, and buyers should be wary of trying to time the market. Now is as good a time as any to begin the process of getting mortgage ready by speaking with an adviser”.
Propertymark chief executive officer Nathan Emerson says today’s figure is “disappointing”.
However, he states: “There are many national and global factors that impact the UK economy, hopefully inflation will better stabilise, and the UK economy should continue to adapt, no matter what happens in response to national and international events.”
“With housing playing a vital role in the growth of the economy, over time it would be positive to see interest rates drop to levels not seen since 2019, in order that more people can afford to enter the housing market for the first time, or make their next all-important home move.”
Also weighing in, Market Financial Solutions chief executive officer Paresh Raja adds: “After years of sky-high inflation, any uptick in the CPI figure is understandably met with a healthy dose of trepidation. But the economy has turned a corner, and inflation will now regularly rise and fall – so long as it hovers close to the 2% target, smaller shifts are perfectly fine.”
“Much of the noise surrounding the monthly inflation data comes down to the impact on interest rates and the cost of borrowing. The Bank of England has signalled its intent to steadily cut rates, and even the fallout from the recent Budget did not derail those plans.”
“There could be one final base rate cut for the year when the Bank next meets in December, and today’s modest CPI uptick ought not to dramatically alter the decision-making progress. Indeed, the expectation remains that the base rate will continue to fall over the coming year.”
“Lenders have an important role to play in imbuing brokers and borrowers with greater confidence. This often means not fixating on short-term trends but taking a longer-term view of the lending and property markets. Today’s inflation news may be met with negative reactions, but the bigger picture remains positive, with the property market in a position to perform well in the months ahead.”
