Another Interest Rate Rise On The Way

The relatively good news over inflation delivered by the government yesterday will not stop a 15th successive base rate rise from the Bank of England.

The respected John Charcol mortgage advice service says the headline inflation fall to 6.8 per cent - the lowest for 15 months - will bring the calm and stability that the mortgage market needs.

But John Charcol spokesperson Nicholas Mendes says: “Prior to the announcement markets had priced in a base rate rise peak of 6.0 per cent which means we are certain to see a further rise of 0.25 per cent in September regardless of the inflationary data, meaning a 15th base rate increase.

“Expectations further increased following the news UK wages grew much more than expected in the three months to June, reinforcing the Bank of England’s concerns over the pressures fuelling inflation.

“In April to June, annual growth in regular pay, which excludes bonuses, was 7.8 per cent, according to data published on Tuesday by the Office for National Statistics. That highest regular annual growth rate since comparable records began in 2001.”

The latest headline inflation fall is thanks to lower energy bills and easing food inflation, but core inflation - excluding energy, food, alcohol and tobacco - is unchanged from June, at 6.9 per cent. Experts says this will come as a disappointment for the Bank of England.

Tom Bill, head of UK residential research at Knight Frank, says: “Falling headline inflation suggests a faint light at the end of the tunnel but stronger than expected wage growth and core inflation indicates the Bank of England will believe its work raising rates isn’t quite done yet.

“Some lenders are cutting rates, but for anyone buying, selling or re-mortgaging, it shows the upwards pressure on mortgage rates hasn’t gone away.

“That said, demand in the property market will continue to be supported by wage growth (which is now outpacing inflation), lockdown savings, the availability of longer mortgage terms, lender flexibility and the popularity of fixed-rate deals in recent years. We don’t expect a cliff-edge moment for prices but they will continue to come under pressure in the short term along with transaction volumes.”