No Excuse Not To Cut Rates Today - Agents’ demands

Inflation back on target and following speculation about a summer interest rate cut have prompted Propertymark to insist that the Bank of England should cut base rate - starting today.

The Bank’s monetary policy committee will release its latest decision on base rate today at noon - we will cover it on Letting Agent Today - and Propertymark led up to the meeting by issuing a statement saying: “With inflation now back down to the levels initially targeted, Propertymark is extremely keen to see this now inspire a drop in interest rates when the Bank of England Monetary Policy Committee meet. Since the start of the year, we have witnessed many hints that rates may see a cut midyear and we now want to see this all click into place, with lenders bringing a new raft of competitive mortgage at the first opportunity.”

The Consumer Price Index rate of inflation dropped to 2% in May, down from 2.3% in April and ending a three-year battle to return price rises to target levels. It hasn't been this low since July 2021 and is a big turnaround from highs of 11.1% in October 2022 amid an energy crisis caused by the Ukraine war.

Economic analysts prefer the measurement of so-called Core Inflation which strips out volatile elements such as food and energy and is therefore a better gauge of inflation. It had been 3.9% in April and the drop to 3.5% in May was in line with forecasts.

However, while Propertymark wants a base rate cut today, most experts say this is unlikely.

Sarah Coles from business consultancy Hargreaves Lansdown says the smart money is on a cut soon, but not today.

“This could come in August or September, and we’re currently expecting a couple of cuts before the end of the year. This will be a welcome change given how long people have been waiting for them, but it’s not a spectacular overnight move, so mortgages are still likely to be uncomfortably expensive for the rest of 2024. For those who need to remortgage in the near future, things are still looking relatively miserable, and Moneyfacts figures show the average two-year fixed rate rose from 5.56% at the end of January to 5.97% this week. This is despite pricing in potential cuts later in the year, so we’re unlikely to see significant movement until the market sees more cuts on the cards.”

Ben Thompson, deputy chief executive at Mortgage Advice Bureau, also believes the base rate drop will be soon but not today: “May’s inflation drop, in other circumstances, may have prompted some positive movements in the mortgage market. But, with rate cuts largely priced in, the Fed dragging its heels and a General Election in a matter of days, the Bank of England will be reluctant to make any waves. 

“This doesn’t mean it’s a time to sit still for those aiming to get on the property ladder or with mortgage deals due to expire. Mortgage rates are unlikely to drop really significantly when the Bank of England does cut rates, so now is the time to get on the front foot, speak to a broker and get mortgage ready. There are competitive deals on the market to be taken advantage of.”

Nicholas Mendes, technical manager at high profile independent brokerage John Charcol, is even forecasting how the Monetary Policy Committee today will split in its decision on a base rate cut.

He says: “With the ongoing general election campaign, can expect a likely 5/4 split decision to hold rates steady as the Bank aims to maintain a neutral stance. Market predictions indicate a 50% chance of an initial rate cut to 5% by August, with a potential total decrease of 0.5% by the end of the year. Given that mortgage rates are influenced by swaps reflecting market expectations of future interest rates, we are likely to see a shift in fixed-rate pricing, suggesting a positive turn as we move into the second half of the year.”