One More Rate Rise? Or Is This It For Now?

The jury is out as to whether there will be a rate rise this week when the Bank of England Monetary Policy Committee meets. 

Recent figures suggest that the cost-of-living crisis, high borrowing costs, bad weather and strikes have conspired to cause the economy to contract - considered a reason for the BoE to keep rates as they are.

However, with wage growth still hot and fuel prices higher, and an inflation figure not out until the day before the BoE meeting, many analysts say it’s still likely that the Bank of England will raise interest rates again from 5.25 to 5.5 per cent - not least because the official 2.0 per cent inflation target is still some way away. 

Sarah Coles, head of personal finance at Hargreaves Lansdown, says: “For anyone with a variable mortgage, this week’s rate rise is likely to make your monthly payments more expensive. Anyone who moved onto a variable deal when their fixed rate expired last autumn, in the hope that fixed rate deals would get cheaper, will have stomached a year of ever-increasing rates.

“However, for those coming to the end of a fixed rate deal and looking to remortgage, the end of the rate rise cycle spells better news. The market has gradually accepted that we’re unlikely to get as many rate rises as it had feared, so rates have been gradually drifting south. 

“Assuming no major shocks on the inflation front, this may well continue. It means yet again we could see the counter-intuitive mix of the Bank of England raising rates and the banks cutting theirs.

“It's going to take something more significant for a step change in rates, so we don’t expect huge movements in the immediate future. It means mortgages will still remain far higher than we have seen in recent years, and as people are forced to remortgage, it will take lumps out of their financial resilience. For that to change, we’d need to see market expectations of cuts, and for that we’re likely to have to wait much longer.”

Despite many anticipating a rise in base rate on Thursday, mortgage lenders have continued to cut rates with Nationwide, NatWest and HSBC introducing reductions of up to 0.29 percentage points. This is because swap rates, reflecting the market’s assumption that interest rates are near or at the top, are also falling gently right now.