Latest figures make grim reading
Figures released today show that Britain’s inflation rate refused to budge in August, holding at 3.8 per cent and preserving a stubborn gap above the Bank of England’s 2 per cent target. For the mortgage market, the print extends a period of uneasy equilibrium: household budgets remain pinched by food and energy, lenders’ funding costs look range-bound rather than falling, and the odds of materially cheaper fixed rates before winter have shortened.
“A few weeks ago, everyone was expecting a November cut,” said Geoff Garrett from Henry Dannell Mortgage Advisors. “We made commentary about that. I think our stance has changed now. It doesn't look like any rates are coming down anytime soon. It's interesting because inflation is clearly sticky and it doesn't look like that's going to change at the moment.”
The composition of price pressures offered little comfort. Air fares unwound some of July’s surge, but dearer fuel and persistent strength in hospitality offset the relief. Food and drink inflation accelerated for a fifth consecutive month to 5.1 per cent, a reminder that living-cost erosion continues to gnaw at real incomes and therefore at affordability assessments. The Office for National Statistics’ chief economist captured the cross-currents neatly: “The cost of airfares was the main downward driver this month with prices rising less than a year ago following the large increase in July linked to the timing of the summer holidays. This was offset by a rise in prices at the pump and the cost of hotel accommodation falling less than this time last year. Food price inflation climbed for the fifth consecutive month, with small increases seen across a range of vegetables, cheese and fish items.”
All eyes now turn to the Monetary Policy Committee. Market consensus, echoed by high-street treasurers, is that Bank Rate will be held at 4 per cent, and – crucially – that the Bank will keep its counsel on the pace of any future cuts. Today’s figures are not good viewing for those hoping for a cut to interest rates when the Monetary Policy Committee (MPC) meet tomorrow. With wage growth and services inflation running hot, the MPC is very likely to keep rates on hold.
The stance of the MPC matters as much as the decision itself. “The chances of a September cut have always been low, but the MPC's hawkish messaging in August and the lack of dovish surprises in recent data have reinforced this view,” Edward Allenby told Yahoo Finance, reflecting a view in the City that forward guidance will remain guarded. Steve Matthews went further on the prospect of an extended pause: “Industrial action amongst doctors and transport workers, sticky inflation, and a cooling labour market will certainly be giving the Bank pause for thought in continuing its current easing cycle.”
“We got close to the 2% target,” Garrett told Insurance Business. “We didn't quite get there, but we got close to it and we saw a slight divergence in Bank of England policy where they were prepared to cut base rates even though the 2% threshold hadn't been met. Obviously things have bounced again now and they've gone up to 3.8%. That would suggest that there's not going to be any more cuts.”
From a pricing perspective, lenders that trimmed fixed rates in the summer rally now confront a stickier backdrop. Pipeline hedging will remain tight; the appetite for headline-grabbing cuts is likely to give way to quiet adjustments in fees and cashback. That chimes with the swaps view in the intermediary community.
There were, nonetheless, crumbs of comfort in the data. Thomas Pugh told The Scotsman that the reading was broadly consistent with Threadneedle Street’s forecasts, but warned that the committee will not be bounced into action. “Stable inflation in August in line with the Bank of England’s forecast and a slightly bigger-than-expected fall in services inflation is good news, but it won’t make much difference to the Bank’s monetary policy committee (MPC),” Pugh said. “The drop in services inflation was largely due to the reversal of the jump in airfares in July and inflation is still set to reach 4 per cent in September. That will make it difficult, although not impossible, for the MPC to cut rates again this year. However, we think February is the most likely chance for the next rate cut.”
Borrowers looking for relief this side of Christmas may have to temper expectations. “While inflation is no longer rising, it doesn’t make another rate cut any likelier this year,” Scottish Mutual saving expert Kevin Brown told The Scotsman. “Realistically, we won’t see the next cut until March or April next year now, which will come as a blow to borrowers holding out for a further reduction in borrowing costs before switching to a new mortgage rate. For savers, the challenge remains the same. Even flat inflation eats away at the value of cash, and with savings rates softening, it is vital they shop around for the best rates or consider long-term investments that offer the potential for stronger returns and better protection against inflation.”
The policy debate may yet be shaped by the Bank’s language as much as its vote count. Sanjay Raja told Yahoo Finance that he expects the rhetoric to hew to caution: “There are three paths here the MPC can take: one, stick to its current guidance of ‘gradual and careful’ rate cuts, two, tweak its current guidance to ‘gradual and cautious’ rate cuts, or three, simply, drop the current guidance entirely… We place a 40/20/40 probability for each of the three paths.”
For brokers, the practical implication is clear enough. Product transfers will stay dominant as customers choose certainty; shorter trackers only appeal if paired with fee-free flexibility; buy-to-let remains hemmed in by rent-cover tests now that rental growth is slowing.
Everyone in the chain will keep one eye on Threadneedle Street’s tone. As Capital Economics put it, “The MPC has been cutting rates every other meeting since August 2024, it cut rates at its previous meeting and there hasn’t been any developments that would prompt it to speed up. We suspect the forward guidance will remain the same with the MPC stating that rate cuts will be ‘gradual and careful.’”
If there is a single conclusion for mortgage professionals, it is that a flat inflation print does not translate neatly into cheaper mortgages. It merely extends the stalemate: prices are not running away, but nor are they falling fast enough to prise open funding. “If I was a client who had a mortgage coming up for renewal soon, I would be locking rates in as quickly as I possibly could,” Garrett said. “It could get worse quickly. We saw that in September, literally this time three years ago, 23rd of September. It's etched on my mind. We saw rates go through the roof. All of a sudden, fixed rates just leapt. It was a horrendous shock.”
