This week’s inflation news may determine a New Year interest rate cut

All eyes are on HM Treasury this week ahead of the next inflation figures, to be released on Wednesday morning.

Analysts suggest that if various measures of inflation show a fall - including so-called core inflation - there is at least an outside chance of an interest rate fall early in 2024.

However a new forecast from the independent Office for Budget Responsibility suggests that inflation will average 3.6 per cent in 2024 - indicating that any interest rate movement may be gradual rather than rapid.

Former RICS residential chairman Jeremy Leaf says: “Interest rate stability is exciting, helping re-build confidence for home buyers when it comes to taking on debt and improving activity in our offices. Of course, we would prefer to see a reduction in these historically high rates, but this is unlikely to happen anytime soon.

“Continuing falls in lender rates and inflation are the best we can hope for at the moment, which are contributing, along with healthy employment figures, to a more optimistic tone as we head into a new year.”

And Matt Smith, Rightmove’s mortgage expert, says: "The market opinion remains that Base Rate has reached its peak. The fact that swap rates – the underlying cost of mortgages to lenders - fell further after the latest UK GDP data was published, was another indicator that the markets were confident about how today’s announcement would play out.

“Many of the factors that contributed to the hold in September and November are continuing, and a flattened Base Rate, which could begin to fall in 2024, is looking increasingly likely.”

However, business consultancy Hargreaves Lansdown is more pessimistic, saying that on balance, cuts are unlikely until the second half of next year.

Sarah Coles, head of personal finance at Hargreaves Lansdown, says: “We’ve hit the top of the rate rise cycle, and the question is no longer what will happen next to rates, it’s how long we’re going to wait until we see cuts, and what this means for mortgages.

“Tracker mortgages will hold steady when rates are on hold, because they move with the base rate. Fixed rate mortgages, meanwhile, are on their way down – and the average two-year rate has dropped below 6.0 per cent. 

“Fixed rates are mainly driven by expectations, and right now the market is expecting Bank of England rate cuts sooner rather than later, which is feeding into cheaper deals. We can expect more of the same in the coming months.”

She adds: “We’ve seen nosebleed-inducing ups and downs in the mortgage market over the past two years – with two-year fixed rate deals hitting a recent peak of 6.85 per cent at the start of August, before dropping back below 6.0 per cent.

“However, this is a completely different mortgage landscape to two years ago, and there’s no expectation that we’ll return to the good old days in a particular hurry.”