The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-4 to leave the base interest rate unchanged at 3.75% in February, following higher-than-expected inflation figures released last month.
When inflation is rising, central banks will typically either hold or increase interest rates to cool spending and encourage saving. The Bank of England has an inflation target of 2%, and whilst inflation has moved closer to this level over the past year, progress has been uneven.
Steeper food prices and higher airfares pushed the Consumer Prices Index (CPI), the UK’s official measure of inflation, up to 3.4% in the year to December, compared with 3.2% in November. This increase dampened expectations of an interest rate cut in February and reinforced the MPC’s cautious approach.
However, there are no guarantees, and some are questioning whether there might be only one rate cut this year. If inflation proves more persistent than expected, particularly if UK wage growth remains strong, policymakers may delay any further cuts.
Mortgage rates nudging up
Following an increase in swap rates, more lenders including NatWest and Nationwide have increased rates over the last couple of weeks, and as a result it’s likely that others will follow.
If you’re coming to the end of your deal in the next 6 months, it’s therefore worth reviewing your options in good time. You can secure a new deal 3-4 months ahead of time, and in some cases up to 6 months in advance. That way you can secure a rate now but you can review your options again before completion if rates do start to ease back.
