Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property Industry Eye. Read the original article for full details.
Markets Price In Bank Rate Rises as Stability at 3.75% Could End
The Bank of England is widely expected to keep interest rates unchanged at 3.75% this week, which would be the sixth consecutive meeting without a change. Rates have held steady since December, but financial markets increasingly bet the next move will be upwards as inflation pressures intensify.
Money markets are now pricing in as many as four quarter-point increases by July next year. If delivered, that would take Bank Rate to 4.75% in less than 12 months, a shift that could put renewed upward pressure on mortgage rates and housing affordability.
Why expectations have shifted
The change in expectations follows stronger economic growth and renewed inflation concerns. Official figures showed the UK economy unexpectedly grew by 0.4% in July, when economists had forecast growth would stall, suggesting the economy may be better placed to withstand higher borrowing costs.
Meanwhile, Consumer Prices Index (CPI) inflation rose to 2.9% in July, up from 2.6% in June, the highest level since March. Further pressure is expected when Ofgem's new energy price cap takes effect in October, raising bills by 4% for a typical dual-fuel household. Higher global energy prices have added to concerns about the inflation outlook.
A divided committee
The Monetary Policy Committee is nevertheless expected to adopt a wait-and-see approach this week while policymakers assess the economic impact of the Middle East conflict and higher energy costs. Divisions within the nine-member committee are already apparent: Huw Pill, Megan Greene and Catherine Mann voted to increase Bank Rate to 4% at the previous meeting, and economists expect all three to support another immediate rise.
Matt Swannell, chief economic adviser to the Item Club, said it looks a near certainty the MPC will leave Bank Rate unchanged, but attention will focus on the committee's communications, particularly whether doves have moved towards accepting the possibility of future rate rises.
Pantheon Economics suggested the MPC could "toughen its language" this week, potentially leaving the door open to an increase as soon as November, warning that "The MPC needs to be ready" if energy price rises push inflation higher. Thomas Pugh, chief economist at RSM UK, said policymakers would need to act if higher inflation feeds into wages and business prices, and expects inflation to peak at almost 4% in 2027.
What it means for the property market
For estate agents, buyers and sellers, renewed rate rises would mark a significant shift after months of Bank Rate stability. If markets are right, mortgage rates and housing affordability could come under renewed upward pressure within the next year, and letting agents and inventory clerks should monitor the situation closely as landlords reassess borrowing costs.
Source: Property Industry Eye