Inflation remained steady last month, and food prices came down. Will this mean that interest rates could come down further? Read more…
Inflation remained the same in September, staying at 6.7% despite fuel prices rising. Economists had predicted a drop to 6.6% but petrol and diesel costs kept the figure the same.
However, food and non-alcoholic drink prices fell by 0.2% compared to August – the first monthly drop since 2021.
Base rate change?
You may wonder what this inflation news means for interest rates and whether we’ll see a base rate change next month. The Bank of England will meet on 2 November to review the current base rate figure of 5.25%. Broadly, the financial markets predict that the bank will ultimately decide to keep the rate the same.
‘This is based upon the assumption that the new Ofgem price cap, which began on 1 October, will significantly reduce inflation when October’s figures are announced,’ says MB Associates’ Sales Manager, Phil Leivesley.
Phil adds: ‘If this turns out to be the case, it will mean that we are either at or nearly at the top of the hill as far as the base rate is concerned, with potentially 12-18 months to go until we see this begin to reduce, whereas fixed borrowing appears to be as low as it can go.’
Lower interest rates
Interestingly, some lenders have already cut rates on fixed-rate mortgage deals, and consequently, their profit margins have become increasingly tight.
‘Lenders have been playing a game of limbo and taking it in turns to lower the bar,’ says Phil. ‘We’re at the point now where there isn’t much margin left to cut, so I suspect that fixed-rate pricing can only hold or increase from here for the time being.’
The Chancellor has pledged to get the main inflation rate down to 5% by the end of 2023. The Bank of England has stated it won’t reduce the base rate until inflation reaches its ultimate target level of 2%, which it predicts will happen in or around the second quarter of 2025.