Despite a recent increase in the UK’s inflation rate, expectations persist that interest rates may be reduced this year.
The inflation rate experienced a minor rise to 4% in December from 3.9% in November. However, predictions of lower energy bills in 2024 suggest possible interest rate reductions later in the year. To combat rising prices, the Bank of England increased interest rates, placing additional strain on household finances. The Bank’s current rate is 5.25%, the highest in 15 years.
Financial markets and traders anticipate a decrease in the base rate in 2024, following a significant drop in inflation from its peak of 11.1% in October 2022, the highest in four decades. This decrease occurred more rapidly than the Bank had anticipated. Capital Economics’ deputy chief UK economist, Ruth Gregory, expects inflation to drop below the Bank’s 2% target by April, potentially leading to a rate cut by June.
Similarly, Grant Fitzner, the ONS’s chief economist, noted that other countries like France, Germany, and the US also experienced a slight rise in inflation in December. According to him, this was somewhat unexpected as forecasts suggested a continued decline. Chancellor Jeremy Hunt remarked that despite the rise in overall inflation, the government’s strategy is effective and should be maintained.
Commenting on the figures, Adam Oldfield, chief revenue officer at Phoebus Software, said that predictions of another fall in inflation were “premature, it appears”. He continued:
“Not the best news for those watching the Bank of England’s every move and hoping for the first drop in the base rate. However, all the signs in the housing market in the first few weeks of 2024 have been positive. House prices didn’t take the tumble that was expected in 2023 and mortgage rates continue to fall. Although, the headlines will be jumping out this morning the reality is that unemployment isn’t going up and wages are ahead of inflation. It’s definitely not all bad news.
The problem in the long term is, as always, supply. House prices didn’t fall, as was expected, because fewer properties came to market and failed to meet demand. There, is no quick fix for that problem, so lenders and brokers will have to be creative and look for every opportunity in the coming months. As we head towards spring, if rates continue to look more favourable, we could see more homes come on the market. It’s still a positive picture at the moment, but there are a few ifs.”
Nathan Emerson CEO of Propertymark said:
“It’s imperative to remain mindful the coming months will feel like a transition period as we find a healthier balance again. Last year the Governor of the Bank of England hinted there would be no quick drops in interest rates in order to keep check on inflation.
For homeowners it will mean a higher level of vigilance regarding household budgeting will need to remain for a while yet. For buyers and sellers, it will likely mean very careful planning on searching out the best options for your personal circumstances.
There is positive news within the property market however, we are starting to the house prices in many areas springing back to growth again and Propertymark are optimistic this will become a more widespread picture as we head further into 2024.”
What’s more, Tim Bannister, Rightmove’s property expert, said that the figures shows that we “can still expect some economic surprises this year”, and agents report that the market is “still very price sensitive”. He added:
“However, we’re seeing much more confidence from many movers at the start of this year, who are determined to get on with their plans.”
Matt Smith, Rightmove’s mortgage expert said:
“I’d expect swap rates to rise a little in reaction to today’s surprise inflation figures. Average rates had been falling pretty sharply, but this is likely this to slow as lenders take a more cautious approach over the next few weeks. The big picture is still positive for mortgage rates, with rates more stable and attractive for movers than a year ago.”
Please note that this article was published on 18th January and the date has been changed for newsletter inclusion.
One Response
The reason why the uk base rate is 5.25% is because inflation is 5.25%, no if or buts about it. It’s that plain and simple. Don’t know why people in the know are posting rosy scenarios.House prices are definitely over inflated and to be able to afford a mortgage you need to have a mortgage running till you are at 74 years old, which is well past the present state retirement age and one is very unlikely to be earning what they earn now when they are in their fifties. Hence my view that house prices are grossly over inflated and perhaps a 15% correction is needed from existing prices.