Our entire financial landscape is shifting dramatically and quickly. Some lenders have already started reducing rates on new fixed deals, suggesting a potential turning point in the mortgage market is imminent. As central banks foreshadow record-busting rate changes, the market will continue to prepare for these. Speculation now suggests there’s a one in three chance that the rate might fall to 3.75%. In September, the inflation rate rose to 3.8%. This figure is currently well over three times the Bank of England’s own target of 2%. Yet this figure has turned out to be lower than just about every analyst hoped.
In comments following rates being cut to 4.5% in September, Bank of England Governor Andrew Bailey indicated that more rate reductions are likely. He cautioned that the rate of these cuts will be “more unpredictable.” These expected changes will have consequences for borrowers and savers alike. Savers are increasingly being demoralized, as they find themselves experiencing declining returns at the same time as experiencing inflation impacts.
Danni Hewson, Head of Financial Analysis at AJ Bell, described the current environment as “poisonous” for consumers. Hewson stated, “The odds are still firmly in favour of a hold,” referring to the likelihood of maintaining current interest rates in light of upcoming economic data.
That the most recent inflation report, released last week, food and drink prices have risen at their slowest rate in more than a year. This provides a promising ray of sunshine for federal, state and local policymakers. As Rachel Springall of financial data provider Moneyfacts pointed out, the priority needs to be on containing inflationary pressures. She remarked, “The Bank will be focused on getting inflation falling and creating the conditions for interest rate cuts.”
With the next meeting of the Monetary Policy Committee (MPC) fast approaching, for the first time ever, they’ll be publishing the dissenting or independent judgment of each member, clearly labeled, to the side of the committee’s decision. This transparency is to provide more public understanding as to the deliberations that go into making monetary policy decisions. The MPC is made up of nine members, each bringing a different perspective to the conversation around interest rates and economic stability.
Speculation about what the Fed may do next swirls, especially with a likely Fed rate cut on December. The government’s Budget would have to play a radical role in achieving such a switch. This effect is particularly true if it brings in large net tax increases without adding to inflation.