Industry members weigh in on the Bank of England’s next move
The UK’s latest inflation uptick may look modest on the surface, but it lands at a highly sensitive moment for the mortgage market as economic unrest grows and rates continue to whipsaw.
The consumer price index (CPI) edged higher in March, mainly spurred by rising fuel costs after renewed tensions in the Middle East pushed oil prices up.
That inflation jump to 3.3% came as no surprise, but it still complicates the Bank of England’s path ahead as its next decision on rates loom.
The increase is a significant one, according to Richard Pike, sales and marketing director at mortgage servicing provider Phoebus Software. “It’s the first CPI data to be published since the Iran conflict began, and more importantly the numbers will have a direct input into the Bank of England’s base rate thinking ahead of the MPC [Monetary Policy Committee] meeting next week,” he said.
But that’s not to say that it’s all doom and gloom for the economic outlook. Price pressures caused by rising oil and fuel costs have been offset in part by the energy price cap, Pike pointed out, while easing wage pressures have put downward pressure on underlying inflation.
The key question for Pike: whether the spike marks “a temporary energy bump or the start of a more stubborn inflationary phase.”
Rates expected to hold steady amid volatility
Last week saw some welcome news for homebuyers as a flurry of lenders cut mortgage rates amid positive signs on a resolution to the Iran war – but if investors conclude that inflation will remain sticky, they’re likely to price in a higher-for-longer path for the BoE’s rate, potentially limiting how far mortgage rates can fall and keeping product repricing volatile.
That means Pike doesn’t see rapid rate relief for borrowers ahead. “In the short term, I expect mortgage rates will remain at current levels and volatile,” he said. If rates do stay elevated, it could accelerate the need for more flexible mortgage servicing “in areas such as payment strategies and product transfers where the right servicing software will automate as much as possible to support both users and borrowers.”
Martin Sims, distribution director at digital mortgage lender Molo Finance, said the renewed inflation pressure is already visible in households’ day-to-day spending patterns.
“Increasing inflation reinforces what households are already feeling, particularly at the petrol pump where rising fuel costs are feeding through quickly,” he said. “After a long period of high inflation, it does not take much to dent consumer confidence again, and that caution is likely to weigh on spending and borrowing decisions.”
Don’t expect a rate cut anytime soon – but a hike might not be coming either
Sims doesn’t see the Bank of England rushing to move rates lower or higher as it weighs up the outlook for the remainder of the year.
Governor Andrew Bailey, he noted, has been clear that the central bank is still in wait-and-see mode. “With energy prices still volatile and limited hard evidence on how this shock will settle, policymakers will want to avoid acting too quickly and risk adding further pressure to an already fragile outlook,” Sims said.
For now, the inflation setback doesn’t look likely to send appetite plummeting in the UK property market. Sims said Molo is continuing to see strong interest from investors, particularly in the buy-to-let sector.
“UK buy-to-let remains an attractive, income-focused asset,” he said, “and in uncertain global conditions that appeal tends to strengthen rather than fade.”
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