Inflation’s ‘abrupt move in the wrong direction’ means mortgage rate cuts unlikely before Christmas

Anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon.

After spending one solitary month below the Bank of England’s 2% target, consumer inflation has leapt back into warning territory.

At 2.3%, annual CPI is barely a fifth of the painful 11.1% it reached in October 2022. But this abrupt move in the wrong direction is a setback for the Bank’s ratesetters, who are duty-bound to get inflation down to 2% and keep it there.

The Bank had already predicted inflation would rise above the 2% threshold, but the Government’s ‘tax and spend’ Budget is likely to stoke inflation further in 2025.

With CPI already rising, inflation is once again a worry for anyone planning to buy their first home or remortgage in the coming months.

The return of inflationary pressure means the Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.

While this was to a large extent expected, it doesn’t offer any relief to mortgage
lenders and is unlikely to allow them to reduce the interest rates they offer to new
customers in the run up to Christmas.

Looking ahead to 2025, the pace of Base Rate cuts is now likely to be ‘slower and
lower’ than it was just a few than few weeks ago, and this is being reflected in a rising swaps market which has already forced many lenders to increase their mortgage interest rates over the past few weeks.