Inflation held steady at 3.8% in the year to September, according to latest data from the Office for National Statistics, the third consecutive month it’s remained unchanged.
The Bank of England expected the Consumer Prices Index measure of inflation to increase to 4% this autumn, but easing food prices and a slowdown in price increases in the recreation and culture sector helped keep the rate stable in September. However, it remains almost double the Bank’s 2% inflation target.
Inflation measures how quickly living costs are rising. When inflation is higher, it’s more likely that we’ll see the Bank of England raise interest rates or leave them unchanged. Raising rates makes the cost of borrowing more expensive, reducing consumer demand for goods and services and helping take the steam out of rising prices.
Conversely, when inflation is steady or falling, we’re more likely to see a cut in interest rates, as this makes borrowing cheaper, which encourages consumers to spend.
What this means for your mortgage
Homeowners and those looking to buy will be hoping that inflation has now peaked, potentially opening the door for another base rate cut before the end of the year. So far this year there have been two rate reductions, with the base rate currently at 4%.
Although the base rate has an impact on mortgage rates, fixed rates tend to be priced based on what’s happening to swap rates. These are the interest rates banks charge each other for fixed-term borrowing. Swap rates have nudged down in recent days, which could see lenders reduce their fixed rate mortgage deals ahead of the next base rate decision on November 6th.
This follows rates rising in the first half of the month, amid concerns that September’s inflation numbers would come in higher than they have.
If you’re approaching the end of your current mortgage deal and are worried about locking into a new rate now in case fixed rates fall in response to lower swap rates, L&C’s Rate Check service can provide peace of mind. It enables you to secure a mortgage deal now but review it at any point before your mortgage completes, so that if rates do come down, you’ll be able to take advantage of any more competitive deals that might become available.
