The Bank of England is still expected to raise interest rates again next month despite a slowdown in inflation during June, one key finance figure has suggested.
According to Nigel Green, CEO of financial giant deVere Group, the Bank is expected to “continue its aggressive interest rate hiking agenda” at the next monetary police committee meeting on 1st August.
This comes as figures revealed on Wednesday that UK inflation fell to 7.9% in June, from 8.7% the month before, which suggests that “the battle against inflation in the UK is being won”, according to Green. He continued:
“Although the consumer price index fell to 7.9% last month, amid lower petrol prices and a slowdown in the pace of growth for food, beverages and other basics, the central bank officials will likely argue that there is still work to be done.
We believe the Bank will insist that although inflation is certainly coming down, it is doing so very, very gradually. It remains sticky – still the highest in the G7 – and a long way from the 2% target.
They will say prices are still far too high and rising at a quicker pace than they have done in the past. In addition, they are likely to cite strong wage growth in the three months to May.
Against this backdrop, we expect the Bank of England to increase interest rates for a 14th consecutive time at its next policy meeting – and we wouldn’t be surprised if there were a second consecutive 50 basis point hike.”
Another interest rate hike could “pile on more misery” for households, homeowners, and businesses, said Green:
“We believe that although the battle to tame inflation seems to be being won, with the lowest reading in 16 months, the Bank of England is highly unlikely to be dissuaded from its course of rate hiking action for the time being.”
Also commenting was Karen Noye, mortgage expert at Quilter:
“In the coming months, we could see those people who have overstretched themselves looking to sell their properties at a time when demand is heavily reduced. However, the recent Mortgage Charter will give homeowners a bit of breathing space and should limit the number of distressed homeowners being forced to sell their properties, so we are unlikely to see a flood of such sales.
The past few weeks have been a particularly challenging time for the mortgage market, and we are thankfully now starting to see some semblance of normality resume as lenders stop the rapid readjustment of their rates. This morning’s lower than expected inflation figure will offer some relief to the Bank of England and interest rates are now forecast to rise less sharply as a result, but given inflation is still well above the 2% target it is unlikely that the BoE can take its foot completely off the pedal. If the BoE opts to push rates higher once again, this could cause significant damage to property prices as affordability is further squeezed.”
