The Bank of England’s Monetary Policy Committee, which determines interest rate movements, voted unanimously to leave the base rate unchanged in September, claiming that sharp rises in inflation are likely to be temporary. The base rate has been at 0.1% since March 2020.
August’s jump in the Consumer Prices Index (CPI) rate of inflation, from 2% in July to 3.2% in August, was due to higher prices for food and recreation, as well as steeper restaurant costs. Last August, eating and drinking out cost considerably less due to the government’s Eat Out to Help Out scheme, which gave diners a 50% discount on meals up to £10 each on certain days of the week.
The current rate of inflation is considerably higher than the government’s 2% target and, according to the Bank of England’s latest report, is likely to rise further in the short term to 4% in the final three months of the year. Soaring energy prices along with rising costs for other goods are likely to fuel any further increases.
Impact on borrowersThe low base rate means that homebuyers and those looking to remortgage continue to benefit from some of the lowest mortgage rates ever seen. Last week, for example, Platform, the intermediary arm of Co-operative Bank, launched its lowest ever two-year fixed rate, joining several other lenders offering sub 1% fixed rate deals.
Many of the biggest lenders have reduced their mortgage rates in recent days, including HSBC, Nationwide, Barclays, NatWest and Royal Bank of Scotland. However, if you do spot a mortgage deal you like, don’t hang around, as there’s a risk that if inflation remains stubbornly high, interest rates may have to rise to take some steam out of the economy.
Bear in mind that often the deals with the lowest rates come with the highest arrangement fees, so seek advice if you’re not sure which is likely to be the most cost-effective option for you based on your individual circumstances.