Expected fall in inflation figures could have impact on mortgage rates
Experts expect inflation to slow down again.
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Nervous mortgage holders might get an early indication of the direction of travel the Bank of England might take on interest rates when inflation figures are reported again on Wednesday.
Experts expect inflation to slow down again, falling from 8.7% in April to 8.4% in May, but any overshoot is likely to put further pressures on the Bank to hike rates again.
Unfortunately for people whose mortgages will be up for renewal soon, the expected rate of Consumer Prices Index inflation is expected to be driven by so-called non-core components.
This includes items like vehicle fuels, which fell 2.4% month-to-month in May, according to recent Government data.
Samuel Tombs and Gabriella Dickens at research outfit Pantheon Macroeconomics also said that they expect the increase in food prices to have slowed.
This is largely good news for people at large, but might make mortgage holders nervous.
We expect May’s consumer prices report to bring tentative evidence that the rate of price rises is slowing
Bank of England decision-makers, who will convene to set interest rates on Thursday, often focus more intently on the core inflation figures, which do not include energy and food prices, than the headline inflation number.
So these decision-makers, tasked with getting inflation under control by hiking rates if necessary, are unlikely to be dissuaded from the rise in rates that most expect them to decide on Thursday.
Instead some in the market have recently started considering the chance that the Bank hikes rates by half a percentage point, rather than the quarter percentage point that most still expect.
“We doubt, however, that May’s CPI report, released a day before the MPC’s announcement, will jolt it into aggressive action,” Mr Tombs and Ms Dickens said.
They added: “We expect May’s consumer prices report to bring tentative evidence that the rate of price rises is slowing.”
Analysts at Morgan Stanley said they expected Retail Price Index inflation to have dipped to 11.1% in May, down from 11.4% in April.
Further evidence that food price increases are slowing came on Tuesday. Kantar released new figures showing that grocery inflation had fallen to 16.5% in the four weeks to June 11, from 17.2% in the previous month.
That is the lowest level since last year, but still the sixth highest monthly figure since 2008.
Fraser McKevitt, Kantar’s head of retail and consumer insight, said that the figure “isn’t something to celebrate”.
The Office for National Statistics will report the latest inflation figures at 7am on Wednesday morning.