Inflation fell to 7.9% in June, which marked a pleasant surprise for the mortgage industry. So what will happen with interest rates now? Read on…

With rising interest rates, and the cost of living still expensive, you could be forgiven for thinking there’s very little good news on the horizon.

At last, we can share some good news with you. Inflation fell from 8.7% in May to 7.9% in June, according to the Office for National Statistics (ONS) – the biggest fall since last July. The figure is better than expected. The ONS says falling fuel prices were part of the cause, and food prices rose slower than anticipated. Core inflation – which relates to price rises excluding food and fuel – fell by 0.2% to 6.9%.

Less pressure on the Bank of England

This eases the pressure on the Bank of England to make future base rate rises, although there may still be another increase next month. The Bank has increased the base rate 13 times since December 2021 to combat rising inflation. Two-year swap rates, an indicator for mortgage rates, fell by 0.3% yesterday.

One spokesperson for Capital Economics has described the figure as ‘pretty significant’. This new inflation figure means that some of the latest borrowing costs consumers have faced may come down slightly.

So will there be another base rate rise next month? According to some industry experts, there is a chance that the base rate will increase slightly from the current level of 5%, but we can’t say for sure what will happen.

‘This is certainly positive news, and many have downgraded their view on where the base rate could peak,’ says MB Associates Sales Manager Phil Leivesley. ‘Don’t forget, June’s data doesn’t factor in the circa 19% reduction in household energy costs, which will lag to later in the year. Compared to other G7 economies, the shape of our fall in inflation now looks similar, just slower. It’s still early days, but we could see significant reductions to inflation in the second half of the year.’

When will interest rates come down?

The mortgage industry has naturally welcomed the news but says it may take a while for rates to come down. One spokesperson said he was hoping that lenders would reduce rates and might also budge slightly on fixed-rate mortgage loans.

Others have said we will still see another base rate increase as we are still dealing with rising costs and high mortgage rates.

The next base rate review by the Bank of England is due on 3 August. We’ll keep you updated.

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