The Bank of England is expected to follow through with another rate rise at its forthcoming meeting, even though a sliver of space has opened up to allow them to pause the rate hiking cycle if they wanted to, with inflation falling back considerably in June.
Of course, CPI is still way above target, so the Bank is likely to keep its foot on the brake pedal, even though that leads to mounting pressure on the UK’s beleaguered mortgage holders.
Laith Khalaf, head of investment analysis at AJ Bell, comments on next Thursday’s interest rate decision by the Bank of England: “Even if it raises the base rate, the Bank may be able to pour some balm on the mortgage market by providing some soothing rhetoric that offers a chink of light at the end of the tunnel. Fixed mortgage rates are based on market forecasts of future interest rates, and so they can fall even while the main bank rate is still going up. The market is now expecting interest rates to top out at 5.75% or 6% by the end of the year, so has already pared back its bets from the height of inflationary panic when rates north of 6% were envisaged. The Bank is still walking a tightrope though, as it tries to tame inflation without breaking the housing market.
“The interest rate decision will be accompanied by a full quarterly economic report from the Bank of England, which will offer greater insight into the Bank’s thinking. It will also provide a forecast for inflation in the medium term based on current market expectations for the base rate. This will act as a guideline for the market about whether current interest rate pricing is on the money, depending on whether inflation remains above or falls significantly below 2% on a three year horizon. Any significant deviation from 2%, above or below, could lead to a repricing in interest rate expectations, and consequently the mortgage market, for better or worse. Homeowners might want to have their tin hats at the ready.”