Expectations of an interest rate cut before the end of the year have strengthened after annual inflation came in lower than forecast.
The Consumer Prices Index (CPI) rose by 3.8% in the year to September, below most economists’ predictions. Following the data, analysts said a rate reduction could come at one of the next two meetings of the Bank of England’s Monetary Policy Committee (MPC).
While inflation remains nearly double the Bank’s 2% target, it is expected to ease further over the next two years.
A cut in the Bank Rate, currently at 4%, would offer some relief to mortgage borrowers facing higher repayment costs.
A 25 percentage point reduction would bring the base rate to 3.75%.
Martin Beck, at the consultancy WPI Strategy, said: “A November move looks off the table, but markets may be overestimating how long the Bank will wait.”
Aaron Strutt, product and communications director at Trinity Financial, commented: “I suspect the base rate will come down in December and if it does, then mortgage rates may edge down a bit.
“Normally when we are heading towards the end of the year some of the bigger lenders lower their rates to attract business and it may well happen again over the coming weeks.”
Sanjay Raja, chief UK economist at Deutsche Bank, added: “Big picture, the odds of a rate cut in the final quarter of the year have risen on the back of the data.
“And with chancellor Reeves laying the groundwork for lowering the cost of living in the upcoming Budget, we continue to think that a December rate cut is very much in play.”
