Change in Bank of England interest rate outlook

As those of us in the financial sector will have seen, data released last week has not only opened the door to an interest rate rise this year, but also almost invited it in via a red carpet.
LONDON - Oct. 21, 2021 - PRLog -- Unemployment Data is the main cause of the shift in expectations. The Office for National Statistics published figures that showed that unemployment REDUCED in September to 4.5% (down from 4.6% in August). The BoE was very concerned we would see a spike in job losses, whereas the opposite has happened.

Also, wage inflation was on the rise. Earnings were up 7.2% on the same 3-month period to September last year. This trend is also set to continue as the ONS expects wages to rise between 4.1-5.6% in the next 3 months compared to 2020.

The BoE's argument that inflationary pressures were 'transitory' seems to be greatly weakened by the issue we are seeing in supply chains. With inflation at 3% last month, and set to go over 4% by year-end, it does not look likely this will self-correct anytime soon.

Mortgage Rates have been artificially low for some time. ‚Äč There has been a fierce mortgage rate war on this year which has driven most of the big lenders to offer sub 1% rates for not just their 2-year, but also 5-year products to attract the best borrowers.

With margins in money markets moving up consistently over the last few weeks lenders will not be able to offer sub 1% rates for much longer. You won't see an immediate spike in mortgages rates as lenders 'tranche' funds which tend to last anywhere between 1-3 months so expect to see movements in the coming weeks.

Looks like the market is betting on the BoE making a change in interest rate to raise rates in their December meeting, but depending on what happens in the coming weeks, it isn't ruled out for their meeting on 4th November.

There is also another rate rise predicted in the first half of 2022 to take the base rate to the dizzying heights of 0.5%.

Therefore, our default mortgage position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit/equity, but keep it short term or flexible if less than that figure.

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