Posted on 4 August 2017 by
It would have been a surprise if the Monetary Policy Committee (MPC) had announced an increase in Bank Rate yesterday but it’s decision to hold interest rates at 0.25pc was also the accompanied by and update of its forecasts for overall economic growth.
The vote this month was 6-2 in favour of no change, compared to 5-3 at the previous meeting, and The Bank slightly lowered its growth forecast. GDP growth is now forecast to be only 1.7% this year, compared to the previous forecast of 1.9% and it has also nudged down its 2018 forecast. The Consumer Price Index forecast is virtually unchanged, with The Bank still expecting it to peak around 3% in October; it’s currently 2.6%. Despite not expecting a rate increase the market was expecting a more hawkish tone and so the gilt market reacted positively, with the 5 year yield falling 7 basis points to 0.52% and the 10 year by 9 basis points to 1.15%.
Swap rates will react similarly and although these yields are still above levels before the previous MPC meeting about half of the increase on the back of that meeting has now been recouped.
The likely impact on fixed rate mortgage pricing is that it will take pressure off any lenders that were thinking about hiking rates and provide a little more scope for those who want to boost volumes by competing on price rather than criteria.
The cost of funds is unlikely to change much in the short term, which will be reflected in fairly stable fixed rate pricing. However, with lenders buoying for mortgages clients and no sign of a meaningful pick-up in housing market activity, individual lenders’ can be expected to jockey for position in the mortgage best buys tables, depending on their lending targets.
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