Interest rates have been maintained at 5.25%, as announced by the Bank of England (BoE), echoing the decision made in September. This comes after 14 consecutive increases in the Base Rate since 2021. The primary objective behind these rate hikes has been to address elevated inflation levels. Despite the government’s inflation target being 2%, the current rate stands at 6.7%. The BoE aims to bring inflation down to 5% by the year’s end, emphasizing the delicate balance required to manage inflation while sustaining overall economic health.
The recent decision signals the Bank’s confidence in the effectiveness of its strategy to combat high inflation. There’s a recognition that further rate increases might adversely impact the financial well-being of households and businesses in the long run.
In terms of mortgage rates, despite the Base Rate increase in August and its subsequent hold in September, rates have seen a slight decline during this period. Mortgage lenders had anticipated this rise and factored it into the rates offered to borrowers. Over the past three months, both 5-year and 2-year fixed rates have decreased from their peaks in July. The average 5-year fixed rate dropped from 6.08% to 5.38%, and the average 2-year fixed rate decreased from 6.61% to 5.84%. Furthermore, underlying mortgage costs for lenders, as indicated by swap rates, have continued to decrease. This suggests that mortgage lenders may become even more competitive in their pricing in the coming weeks, potentially leading to further reductions in mortgage rates.
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