UK inflation fell to 3.6% in the year to October, according to the latest figures from the Office for National Statistics (ONS).
This marks the slowest pace of price rises since March and has boosted hopes that the Bank of England could cut interest rates at the next Monetary Policy Committee meeting in December.
Although inflation is still well above the government’s 2% target, lower gas and electricity prices helped bring it down in October. Cheaper hotel stays also contributed, though some costs continue to rise. Food prices, for example, are 4.9% higher than a year ago, and businesses are facing increased costs for raw materials.
The fall in inflation adds to the growing speculation that the MPC might cut rates at its December meeting. However, the Bank of England has warned that it wants stronger evidence that inflation is returning to its target, so although a December cut is possible, it isn’t guaranteed.
Attention will now turn to the Budget on 26 November. Any major tax or spending changes could influence the outlook for inflation, either easing pressure on prices or adding to it.
Lenders already cutting rates
Several lenders have started reduced their mortgage rates ahead of the Budget and December’s MPC meeting.
This trend is being driven by lenders competing to attract customers in a sluggish property market, as well as falling swap rates. These are the rates that lenders must pay other financial institutions to acquire fixed funding for a set term and are therefore used to price fixed rate mortgage deals.
When markets expect a base rate cut, swap rates tend to fall, making fixed mortgage costs cheaper. Conversely, when a base rate rise is likely, the cost of swap rates tends to go up, which in turn pushes up fixed mortgage rates.
Lenders that have trimmed fixed rates in recent days include Halifax, Barclays, and Skipton Building Society. NatWest, HSBC, Santander and TSB all reduced some of their fixed rates last week.
