The Bank of England will raise interest rates again next month despite UK inflation cooling, analysts predict
UK inflation fell further than expected in June to 7.9%, easing forecasts for how aggressively the Bank of England will raise interest rates over the next few months. The Office for National Statistics said the annual inflation rate as measured by the consumer prices index resumed a downward path after unexpectedly sticking at 8.7% in May. The drop exceeded City forecasts for a decline to 8.2%.
With inflation finally falling by more than expected, economists are scaling down their expectations of immediate interest rate rises – although they still think more will take place.
Nathan Emerson, CEO of Propertymark, commented: “As core inflation remains sticky, it is increasingly likely that the Bank of England will consider further interest rate rises. This has obvious impacts on mortgage holders, new and old.
“However, we are seeing a good amount of resilience in the market and serious buyers will continue to make a gain on the price achieved whilst sellers find a happy medium when negotiating the final agreed sale price.”
Financial markets responded by betting that the Bank of England would no longer drive interest rates above 6% early next year, raising hopes for some modest relief for mortgage holders amid the sharpest rise in borrowing costs for decades.
However, despite dropping to the lowest rate since March 2022, UK inflation remains the highest among the G7 group of advanced economies.
Highlighting the risk that Rishi Sunak could still miss his target to halve inflation in 2023 despite the improvement in June, the International Monetary Fund said the UK’s headline rate was on track to hit 5.25% by the end of this year.
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