Interest rates may have reached their peak following 14 successive increases from the Bank of England, its governor Andrew Bailey has suggested.
Bailey told MPs on the Treasury committee that interest rates were already in restrictive territory, adding that rates are “much nearer now to the top of the [tightening] cycle” with inflation set for a “marked” decline.
The monetary policy committee (MPC) has ran an aggressive interest rate policy – the most extreme since the 1980s – leading to rates now sitting at their highest level in 15 years.
While further rises would no doubt help to stem inflation, it appears the MPC wishes to avoid pouring cold water on the rest of the economy in its pursuit. This, of course, includes the property market, which has seen activity fall sharply in response to rising mortgage rates.
However, it appears the current heightened level of rates is here to stay. Bank of England chief economist Huw Phil recently said he would prefer to keep rates raised for longer instead of bringing them to a sharp peak before dropping them again quickly. This was also echoed by Ben Broadbent, a deputy governor at Threadneedle Street.
It is understood that the expectation in the markets prior to Andrew Bailey’s comments was that rates would rise further to 5.75% by 2024.
Whether rates do rise that high, and whether lenders had already priced this in and will subsequently cut rates on mortgage products, will become clear in due course.
In any case, in an environment of lower inflation and uncertainty over further rate rises, it already seems as though lenders are beginning to feel more confident in making cuts in an effort to win new business.
Indeed, this has led to suggestions that a “pricing war” may break out between lenders before the end of the year.