Hope for relief on mortgage rates as cost of living falls
INFLATION fell further than expected today, fuelling hopes that the upward pressure on mortgage rates could start to ease.
Consumer Prices Index inflation was 7.9 per cent in June — down from 8.7 per cent in May and its lowest level in 15 months — according to Office for National Statistics data.
It said falling fuel prices were the biggest driver behind the drop, while food price inflation also pared back to 17.3 per cent from 18.7 per cent in May.
Core inflation — which excludes food and energy costs — dropped to 6.9 per cent, after forecasts that it would remain at 7.1 per cent. The Bank of England has been raising the base rate in a bid to curb inflation, and the latest figures sparked hope it would not need to climb as high as feared in August. Andrew Montlake, from mortgage brokers Coreco, said: “I suspect we will see a slight reprieve as swap rates (which lenders use to price their mortgages) ease a touch with the prospect that we are now closer to the top of the interest cycle than thought a few weeks ago.
“The Bank of England must now exercise some restraint.”
Economist at ING James Smith warned it will be a “close call” whether the Bank votes for a 0.25 or 0.5 percentage point interest rate rise next month as wage growth is running at its fastest pace in more than 30 years. He said: “Is this enough to convince the Bank of England to opt for a 25 basis point rate hike in August? We think it probably will — but it’s going to be a close call.”
The average two-year fixed-rate homeowner mortgage rate on the market today was 6.81 per cent, up from 6.78 per cent yesterday, according to Moneyfactscompare.co.uk. The average five-year fixed residential mortgage is 6.33 per cent, up from 6.30 per cent.
Rishi Sunak today insisted halving inflation is his “top priority”. Asked if the CPI fall means the Bank of England should ease up on interest rate hikes, Chancellor Jeremy Hunt said that “there’s a long way to go and we need to remember that families are still feeling a lot of pressure with very high food price inflation”. Shadow chancellor Rachel Reeves said inflation “remains higher than our international peers”.