It was widely expected that the rate of inflation would increase in July but today’s figures have edged higher than anticipated.
That will be a blow for those hoping for further base rate cuts and could signal that rates will remain higher for longer.
There was hope that there could be another rate cut this year to follow the latest reduction to 4.0% this month.
However, that was a much tighter call with a 5-4 split in the voting. Those preferring a hold in base rate may only reaffirm their view in light of today’s figures.
Mortgage borrowers have been enjoying a market where rates have been dropping. Fixed rates have been pricing in the recent and future cuts, so have been edging down with a host of deals now below 4%.
Those reductions have tended to come in small increments, but we could see that slow further or even reverse in some cases if the market reacts badly to the threat of higher inflation than was previously expected.
Borrowers holding out for more cuts may want to keep close tabs on mortgage rates.
It’s far from doom and gloom but securing a rate now will protect against any turnaround but still allow a further review before completion, if there are further improvements.
David Hollingworth is an associate director at L&C Mortgages
