Mortgage costs slip for first time since May as Bank of England rate bets cool on inflation drop
Mortgage rates have dropped for the first time in two months, sparked by banks passing on a reduction in interest rate bets after yesterday’s better than feared inflation figures.
The average rate on two-year mortgages fell to 6.79 per cent yesterday from 6.81 per cent, according to financial data provider Moneyfacts.
It is the first time average rates have fallen over two working days since April. It was also the first drop of any kind since May. Rates on average five-year mortgages also fell to 6.31 per cent from 6.33 per cent.
A faster than forecast fall in UK inflation has sparked hopes that the Bank of England will slow the pace of interest rate rises at its next meeting on 3 August to 25 basis points from 50 basis points. A lower move would lift rates to 5.25 per cent and be the 14th straight rise.
Financial markets also think the central bank is on course to send borrowing costs to a lower peak of 5.75 per cent compared to 6.25 per cent before yesterday’s data.
Analysts think those cheerier figures have marked the start of sustained inflation drop. The ONS’s next inflation calculations for July could fall below seven per cent, some economists have predicted.
Mortgage rates have rocketed upwards over the last two months or so due to signs that high inflation had become entrenched in the UK.
Core inflation – which removes volatile food and energy prices – jumped to a 30 year high in May of more than seven per cent, while services inflation, a measure closely watched by the Bank, also breached that threshold.
High core and services inflation suggests UK price pressures are being steered by domestic factors, like wage and price setting, a dynamic that often requires tighter monetary policy.
In the weeks after those May inflation figures, mortgage rates shot up to their highest level in around 15 years, hitting 6.7 per cent.
Core and services inflation fell in June, down to 6.9 per cent and 7.2 per cent respectively, but both remain high by historic standards.
However, economists cautioned yesterday that a single set of good inflation numbers may not be enough to convince the Bank to slow its tightening pace.
BNP Paribas analysts stuck with their call that the MPC will lift rates 50 basis points to 5.5 per cent next month.