Market Optimism Grows for September Rate Cut Despite Headline Inflation.
In a surprising twist, market confidence in a September rate cut has increased, even as headline inflation saw an uptick this morning. While markets previously estimated only a 35% chance of a rate reduction next month, this probability has now surged to 50/50, offering potential relief to borrowers amid evolving economic conditions.
Justin Moy, Managing Director at EHF Mortgages, commented, “The growing confidence in a September rate cut highlights that the headline inflation figure doesn’t paint the full picture.”
Moy further explained, “Significant improvements across various sectors are driving this optimism. We’re seeing positive trends with food prices stabilising, a notable decline in services inflation, and fuel costs being the main contributor to the rise in the headline rate. These factors collectively keep the possibility of a September base rate cut alive. Additionally, developments in the US may also influence decisions, but with mortgage rates on a downward trend, we could witness a strong close to 2024 as confidence rebounds in the UK market.”
Michael Brown, Senior Research Strategist at Pepperstone, a leading forex broker and CFD trading platform, added, “While it may seem counterintuitive following this morning’s rise in UK headline inflation, the likelihood of another base rate cut this year has actually increased.”
Brown emphasised the importance of looking beyond the headline figures, noting, “The Bank of England policymakers will be more focused on the underlying data. Core inflation has dipped to 3.3% from 3.5%, and services inflation has experienced a sharp decline to 5.2% from 5.7%. These critical metrics suggest that borrowers might receive the rate cut they’ve been eagerly awaiting before year’s end. This shift could have positive implications for the property market.”
Ranald Mitchell, Director at Charwin Mortgages, shared a cautious yet optimistic view, stating, “We anticipate more base rate cuts this year, though September may not be the month for it.”
Mitchell pointed out, “Despite the focus on rising headline inflation, the real narrative lies in the underlying data: core inflation has reduced to 3.3%, and services inflation has dropped significantly to 5.2%. These are the figures that truly matter to the Bank of England and indicate that rate cuts are likely on the horizon. The market is beginning to turn a corner, and there are brighter times ahead for mortgage borrowers after years of challenges.”
As the year progresses, the evolving economic landscape could bring much-needed relief to borrowers, with the potential for rate cuts bolstering the property market and overall financial confidence in the UK.
Source: Adapted from London Loves Property