Are the Bank of England going to reduce rates this month?
The Bank of England (BoE) are meeting on the 20th of June 2024 to decide what to do with the Bank Base Rate. No one knows which way the rate will go, but in this article, we look at some of the key considerations likely to influence the final outcome.
The current state of inflation, which is currently at its lowest level in three years, has financial experts speculating that mortgage rates may experience a decline in the month of June. Inflation is currently at 2.4%, a mere 0.4% above the government’s target of 2%. While the rate of inflation is not decreasing as rapidly as anticipated, there is still potential for positive news regarding mortgage rates.
The persistence of inflation, despite high interest rates, indicates ongoing spending activity, suggesting that the economy remains robust enough for individuals to prioritise spending over saving.
Consequently, the latest inflation figures bring the BoE closer to its target, increasing the likelihood of a rate reduction. Although the BoE hinted at the possibility of rate cuts in June, it emphasised that a reduction would only be implemented if inflation demonstrated a sustainable decline.
Andrew Bailey, the governor of the Bank of England, stated, “Before our next meeting in June, we will have two complete sets of data – pertaining to inflation, economic activity, and the labour market – that will assist us in making a fresh assessment…….However, let me clarify that a change in the bank rate in June is neither ruled out nor guaranteed.”
Bailey further emphasised that the committee would need full confidence in its ability to maintain inflation below the 2% target before committing to a reduction in the bank rate.
It is worth noting that some economists are less optimistic about a rate drop in June due to inflation still exceeding the Bank of England’s target. The government’s efforts to combat persistent inflation have proven challenging, as the Bank of England has chosen to maintain the base rate at 5.25%.
The base rate has remained unchanged since August 2023, when it was raised to 5.25%. By keeping the Bank of England base rate at 5.25%, households with mortgages continue to face financial strain amidst the ongoing impact of the cost-of-living crisis.
Despite the absence of recent changes to the base rate, there has been a surge in activity during the first few months of 2024, instilling optimism that rates may decrease later in the year. The market appears to be recovering, with many first-time buyers and investors making purchases despite the high costs that deterred them in 2023.
Although the current inflation rate remains slightly above the 2% target, it represents a significant improvement from the rate of just over 11% in 2022. In October 2022, inflation reached its highest point in over four decades, and after nearly two years of elevated interest rates, inflation has gradually declined.
As recently as December 2021, interest rates were at a record low of 0.1%, meaning that the bank rate is now over 50 times higher than it was a year and a half ago.
In summary, no one knows what will happen with interest rates but a good mortgage broker will continually monitor the market for you. Even if you apply for a mortgage now there is still the opportunity to swap to a lower interest rate should one become available prior exchange (purchase) or completion (remortgage).