Homeowner rate hopes boosted after bigger-than-expected fall in inflation
19.07.2023 - 11:51
/ manchestereveningnews.co.uk
Homeowners have been given a glimmer of hope as it appears that interest rates may not rise as high as initially feared. Official figures from the Office for National Statistics (ONS) have revealed that inflation eased back more than expected in June, with the Consumer Prices Index (CPI) falling to 7.9%, down from 8.7% in May.
This is the lowest rate since March 2022, and it is largely due to a decrease in food price inflation and a significant drop in fuel prices compared to the previous year. The majority of economists had predicted that the figure would only fall to 8.2% in June.
However, the unexpected drop has led financial markets to adjust their forecasts for the peak in interest rates. Previously, they had anticipated rates of between 5.75% and 6% by the end of the year, but now they are revising their estimates to a range of 5.75% to 6%.
This change in expectations has caused the pound to weaken against the US dollar and euro by almost 1%. This news provides some much-needed relief for homeowners who have been grappling with soaring fixed mortgage rates, which have reached their highest levels in 15 years in recent months.
According to Moneyfactscompare.co.uk, the average two-year fixed-rate homeowner mortgage rate currently stands at 6.81%, up from 6.78% just a few days ago.
Despite the easing of inflation, the Bank of England is still expected to raise interest rates at its next meeting on August 3. The current interest rate is 5%, and the Bank is determined to bring inflation back to its 2% target. However, experts suggest that the larger-than-anticipated fall in inflation could lead the Bank's policymakers to opt for a smaller increase of 0.25 percentage points instead of the previously anticipated 0.5%
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