An unexpected rise in the inflation rate for November, jumping from 1.7 percent to 2.3 percent, has dashed any remaining hopes for a December cut in the Bank of England’s base rate, finance specialists have decreed. Meanwhile, City markets are now placing their bets on a deceleration in base rate cuts throughout 2025, which is currently pegged at 4.75 percent, rather than the quicker reduction previously anticipated.
This development spells an unfortunate setback for prospective home buyers and those eyeing a remortgage, who may now encounter steeper monthly repayment fees than foreseen. The spike in inflation can be largely attributed to October’s increase in energy prices with another hike on the horizon come January.
Additionally, tax increments laid out in the budget are forecasted to stimulate a more pronounced CPI inflation rate than would have otherwise unfolded. Sarah Coles, Head of personal finance at Hargreaves Lansdown, commented: “Like parents of a toddler on the brink of walking, mortgage borrowers on tracker rates are used to building their hopes up, only to have them dashed by an unwelcome obstacle.”
She noted that although November’s interest rate slash might have kindled expectations for continuous reductions, it seems inflation will once again erect barriers. Coles further remarked: “For those looking for a new fixed rate, or with a remortgage looming, inflation is even more likely to trip them up.”
“Rates have already been rising. Moneyfacts puts the average 2-year fix at 5.52 percent – up from 5.41 percent a month earlier. Given that the Bank of England doesn’t expect stubborn inflation to hit the target any time soon, we’re likely to see higher rates continue to be priced into mortgages for the rest of 2024.”
John Choong, Head of Equities and Markets at Investors Edge, commented: “Today’s CPI data effectively closes the door on a December rate cut.”
“And while lower fuel prices had offered a glimmer of hope that could help offset some of the inflationary pressures from the higher energy price cap and food prices, mounting geopolitical tensions and rising crude prices suggest higher fuel prices instead.”
Emma Jones, Managing Director at Whenthebanksaysno.co.uk, expressed to Newspage: “This is not the news anyone with a mortgage wanted to see.”
“There’s every prospect lenders will now continue to hike rates and a base rate cut in December is almost certainly off the table. There was such optimism just a month or so ago and now it feels like the walls are closing in.”
Earlier this year, City markets were forecasting that the base rate would drop by a full 1 percentage point, bringing it down to 3.75 percent by Christmas 2025. However, due to concerns about persistent high inflation, a smaller cut of 0.6 percentage points is now deemed more probable.
Consequently, tracker rate mortgages and new fixed rate mortgages are expected to be higher than they might have been. Kelsey Phillips, Head of Specialist Lending at Arose Finance, commented: “We could see marginally higher mortgage rates and the Bank of England cutting more cautiously than previously anticipated, leaving a December base rate cut unlikely.”
Daniel Hobbs, Managing Director at New Leaf Distribution, expressed disappointment: “So much for a pre-Christmas rate cut. This is a real blow to the economy, mortgage holders and bricks and mortar. Inflation is on the way up again, quite aggressively too, and that means rates will stay higher for longer. It feels like the whole economy has deteriorated since the Budget.”
Sharing his perspective, Ranald Mitchell, Director at Charwin Mortgages, remarked: “The sharp rise in inflation to 2.3% is bad news for the government, complicating hopes of economic stability. With core inflation also ticking up, the Bank of England may be forced to keep interest rates higher for longer, prolonging pain for mortgage holders and homebuyers.”
Looking to the future, Michelle Lawson, Director at Lawson Financial, warned: “Stand by for mortgage rates to keep increasing and a base rate hold in December. Inflation will go up again due to the recent Budget.”