Markets more confident there will be ‘a rate cut in September’

Though headline inflation rose this morning, markets have increased bets on a base rate cut in September due to an improvement in core and services inflation. Markets had only priced in a 35% chance of a September cut prior to today’s print, but are now seeing a 50/50 chance, which could be a boost to borrowers.

Justin Moy, managing director at EHF Mortgages said, “Markets more confident that a rate cut will come in September shows that the headline inflation figure doesn’t always tell the full story.

“The reality is that there have been some significant improvements as a whole. Food costs are improving, services inflation has seen a significant drop, and fuel costs seem to be the main reason the headline rate has faltered.

“This could still keep a September base rate cut on the table. Also, what happens across the pond may also twist arms anyway, but with mortgage rates improving, we could see a strong end to 2024 as confidence starts to build again in the UK.”

Michael Brown, Senior Research Strategist at the forex broker and CFD trading platform, Pepperstone, said, “As absurd as it sounds following this morning’s rise in UK headline inflation, another base rate cut is now more, rather than less, likely this year.

“The headlines are focusing on the headline inflation number, but that’s not the figure the policymakers at the Bank of England will be focused on.

“The most important takeaway in this morning’s data is that core inflation fell to 3.3% from 3.5% and services inflation dropped sharply to 5.2% from 5.7%. Those key metrics will mean borrowers could get the next rate cut they have desperately been waiting for before the year is out. And that bodes very well for the property market.

“There is a tendency to look at the headline numbers when the devil, as ever, is in the detail.”

Ranald Mitchell, director at Charwin Mortgages said, “We expect more base rate cuts this year, just not in September.

“Despite headlines focusing on rising inflation, the real story is in the data: core inflation dipped to 3.3%, and services inflation dropped sharply to 5.2%.

“This is the news that matters to the Bank of England and bodes well for rate cuts sooner rather than later. We’ve started to turn the corner and there’s more exciting times ahead for mortgage borrowers after several miserable years.”