Trump comments change outlook in seconds but volatility rules
Experts whipsawed today on the number of Bank of England rate rises expected this year, even as mortgage pricing continues to tighten and product choice shrinks. Speculation is now rife over how many additional moves the Monetary Policy Committee (MPC) will deliver – if any.
At the start of trading on Monday, interest-rate derivatives implied that investors saw a clear risk of four quarter‑point increases before year‑end, taking the Bank Rate from 3.75% to 4.75%, according to reports in the Financial Times and The Guardian. That profile underpinned a pronounced gilt sell‑off and pushed up funding costs across the curve.
READ MORE: Gilt sell-off raises fresh concerns over mortgage pricing
By mid‑morning, the tone had changed. After Donald Trump instructed US defence officials to postpone airstrikes on Iranian energy infrastructure for several days, the immediate geopolitical risk premium built into global bond markets eased. UK rate markets retraced part of their move, with investors then pricing in only two quarter‑point rises, implying a year‑end Bank Rate of about 4.25% rather than 4.75%.
The gap between market pricing and economists’ forecasts has widened. Until the latest jump in gilt yields, many forecasters argued that the Bank was at or near the peak of its tightening cycle. Goldman Sachs told clients last week that it did not expect any rate rises this year, saying the MPC was likely to leave the Bank Rate at 3.75% throughout 2026. Other analysts have questioned whether talk of four increases was ever justified on the basis of the data, with some describing that scenario as overdone.
The Bank of England has attempted to keep its options open. Having left policy unchanged at its most recent meeting, the MPC signalled that it could yet be forced to act if the inflationary impact of the conflict in Iran and higher energy prices proves more persistent than forecast. Andrew Bailey, the governor, has also warned that markets may be running ahead of themselves in the scale of tightening being priced in.
READ MORE: HSBC to lift mortgage rates in fresh round of hikes
For the intermediary community, even after Monday’s reversal, rate expectations embedded in the swap curve still point upwards. The range of plausible outcomes now runs from no further moves at all, through one or two quarter‑point hikes, with the earlier flirtation with four increases looking more like a brief overshoot driven by geopolitical anxiety than a settled view.
Mortgage pricing, however, has already reacted as if the more aggressive scenarios might come to pass. The average two‑year fixed residential rate has climbed from 4.83% at the start of March to 5.43%, an increase of 60 basis points in a matter of weeks. Lenders have pulled and repriced products rapidly, often pre‑empting rather than following MPC decisions.
Product availability has also deteriorated. The number of residential mortgage products on the market has fallen by hundreds in days, as lenders reassess their funding costs and risk appetite. Industry commentators have described the impact on the home loans market as severe, highlighting the speed at which offers have been withdrawn.
Client communication
The situation leaves brokers having to manage expectations around timing. With lenders responding to intraday swings in swap rates, the traditional rhythm of “MPC meeting, then product changes” has broken down. Brokers may need to encourage clients to secure deals more quickly, to accept that offers could be withdrawn with little notice, and to have fall‑back options ready if preferred products disappear mid‑application.
This means preparing clients for continued volatility in both rates and product availability, and framing advice around resilience to further upward moves in Bank rate rather than hoping for an early pivot to cuts.
In a previous Mortgage Introducer article, brokers explained how the Middle East conflict had exacerbated a change in how the Bank Rate is perceived.
Jeni Browne, of Mortgage Finance Brokers, said: “As the understanding of how SWAP rates impact mortgage rates improves, and now that most mortgages are arranged on fixed rates, the importance of the base rate, especially from a borrower perspective, has seen a real dip in terms of importance, with the focus being much more on the capital markets.”
Alan MacKenzie, of Your Next Step Mortgages, said the current environment is prompting more questions from clients.
“With the base rate holding steady, it does prompt a lot of questions from clients about why we’re seeing rate hikes. It’s a delicate balance, we know the base rate matters, but it’s really swap rates that are driving the live market right now. We do have to bring some education to the table, but of course, we don’t want to overwhelm anyone.”
