There’s growing optimism that tomorrow’s Bank of England monetary policy committee meeting will see base rate held for another month - and not increased.
Food inflation has dipped again for the sixth month in a row according to data from NielsenIQ and the British Retail Consortium, to reach 8.8 per cent.
This is a level not seen fore 112 months and while it means groceries are still getting more expensive - just more slowly - this is regarded by analysts as a strong influence on the Bank’s base rate decision making.
Susannah Streeter, head of money and markets at business consultancy Hargreaves Lansdown, says: “Expectations are rising that the pause button on interest rates will be hit again, helped by oil prices largely cementing [this week’s] losses. As hopes that violence in the Middle East can be contained, supply worries have retreated.
“Policymakers will be mindful of the pressure already being piled on companies though sky-high interest rates and elevated costs. The number of firms in a state of critical financial distress has jumped by 25 per cent in the last quarter according to Begbies Traynor … The trend of companies in financial difficulties and being forced to fold is at a level not seen since the great financial crisis.
“So the Bank’s Monetary Policy committee will be highly mindful about not piling on more pressure, with the UK economy only just crawling ahead.”
Her Hargreaves Lansdown analyst colleague Sarah Coles says tomorrow’s decision will impact mortgage rates.
She states: “Mortgage rates have fallen slightly from a recent peak for the average two year rate of 6.85 per cent at the start of August to 6.34 per cent. However, they’re still a long way above the levels we saw in the spring – let alone the sub two per cent rates so many people on fixed rate mortgages have come to rely on.”
Coles suggests that the expectation that rates will hold for a considerable period may see mortgage rates come down slightly further. She believes there are still some who think there could be another rise in the works, so if nothing materialises, this expectation will gradually filter out of prices, and rates come down a little.
However, there’s not much of a rise priced in, so they won’t fall far.
She continues: “For there to be significant movement, it would require the market to expect an imminent cut or rise. Right now, we’re expecting neither, so it would take for the picture to change significantly for rates to move dramatically in the next six months or so.”