- The Bank of England is expected to hold rates next week.
- Inflation should remain sticky – despite a recalculation from last month’s mistake.
- Thanks to weaker labour market data, the markets are pricing in two more rate cuts this year.
- What it means for the economy and for you.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“The chances of an interest rate cut this month look super-slim, given that inflation is expected to remain elevated. Even though high wage growth is easing off and vacancies are falling as firms hold back from recruiting, pay growth is still outpacing inflation. Add Trump’s tariffs into the mix of uncertainty, and policymakers are set to stay in wait-and-see mode, taking longer to assess the path ahead for prices.
Inflation was predicted to peak at 3.7% this year before starting to fall back. Just a couple of weeks ago, as little as one interest rate cut was being priced in by financial markets between now and the end of the year. However, because the labour market is weakening a bit more quickly than expected, two interest rate cuts are now expected, one by September and another in December.
Now that a deal appears to have been reached between the US and China, which will see the threatened triple digit tariffs on Chinese imports reduced sharply, there may be hopes that the drag to the global economy and the UK won’t be as severe as had been feared. This could help restore some business confidence and see a small uptick in hiring – which could keep wage inflation that bit more stubborn. However, given a trade deal with the UK is yet to be signed, sealed and delivered – and other nations are still in the queue for talks, further unpredictable moves can’t be ruled out. Policymakers will keep being driven by the data and wariness is set to stay the theme for a while.”
What it means for you
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“The sticky inflation figures being forecast would reflect what most of us already know: bills are taking a bigger toll and eyebrows are still being raised at the tills in supermarkets across the country. However, because these price rises were already forecast by the Bank of England, it would be unlikely to have a significant impact on rate expectations.
These have moved slightly over the past week, after weakening labour market data was released, so the market now expects two more cuts this year. This is likely to be the key factor in the savings and mortgage market in the short term.
For savers, it could put downwards pressure on fixed rate deals. Shorter fixed deals have already fallen as a result of the May rate cut, but longer fixes could come under pressure too. If you’re planning to fix for 3-5 years you might want to act sooner rather than later.
There are no certainties here though. A lot will depend on the bond market– and how it reacts to a rapidly-changing political world. It means that rather than trying to time the market, it will remain important to choose the right combination of easy access and fixed rates to suit your needs – and shop around among online banks and savings platforms for the best deals available at the time.
There has been bad news over the past week or so for borrowers, as US political dramas drove bond yields higher, and many of the high street banks increased their fixed term mortgage rates. If inflation figures don’t hold any surprises, interest rates are held, and expectations stick for two more cuts this year, we could well see rates fall again. The way the mortgage market is moving around at the moment means acting fast and taking advantage of opportunities will be key when you’re looking for a deal.
The HL Savings & Resilience Barometer found that those who have remortgaged since rates started climbing at the end of 2022 pay £157 a month more for their mortgage, so it’s worth doing what you can to keep the rise in your monthly payments to a minimum.”
