Inflation rates are alive: Bank of England expected to keep interest rates at 4.75 percent

Rates have been on a merry path since the financial crisis, when borrowing was almost free for some borrowers, including several governments.

The record figure was 17 percent in November 1979, a rate that remained until July 1980.

The all-time low was 0.1 percent in March 2020 in the wake of Covid.

From 1719 to 1822 the rates were set at 5 percent.

What this means for mortgages

Sarah Coles, head of personal finance at Hargreaves Lansdown, says:

“Mortgage rates have struggled to stabilize in recent weeks, with every economic news – and every statement from the Bank of England – causing rates to rise or fall slightly within a fairly narrow range.

“Higher inflation is likely to mean another small upward swing in fixed rates, but given that rate expectations should remain largely unchanged, there's a good chance it won't be anything to write home about. We could see average two-year fixed rates staying around 5.5 percent.

“This is more bad news for buyers, who face record prices and relatively high mortgage rates that show no signs of meaningful easing. The HL Savings and Resilience Barometer shows that people in their early 30s have the largest amounts outstanding on their mortgages (with 45% more mortgage debt than people in their early 50s), so who may be at greatest risk of being overloaded.

If you're looking to remortgage, there's no sign of imminent relief either. And with some uncertainties remaining about the path of rates and inflation, it may be worth locking in a rate as soon as possible. That way, if rates go down, you can shop around, and if they're higher when your remortgage arrives, you'll have gotten a better rate.”

Economics expert Professor Andrew Angus of the Cranfield School of Management is also skeptical of any rate cut.

“A combination of increased public spending, infrastructure investments and the approach of winter is expected to boost inflation, making an interest rate cut this Thursday as likely as a white Christmas.

“Despite predictions of economic growth, a palpable sense of uncertainty remains over how businesses will fare following the recent budget. Many are already feeling the effects of rising costs, including higher business rates, rising minimum wages and National Insurance contributions, which may overwhelm many businesses. With an early Christmas present in the form of a rate cut and the next announcement not due until February, businesses will be eager to see how the Bank of England acts to promote stability and growth.”

One thing CPI inflation doesn't reflect is the cost of housing, which is also rising. Although this is more linked to the offer.

Annual growth in UK house prices and rents has accelerated, and rental price inflation in England and London has reached record levels, according to official figures.

The average house price rose 3.4% in the 12 months to October, up from 2.8% in September, according to data from the Office for National Statistics (ONS). The report also showed that annual growth in private rental prices accelerated to 9.1% in November, from 8.7% in the 12 months to October.

ONS head of housing market indices Aimee North said: “Rental prices rose again in the year to November, and the average private rent in Britain is now around £1,300 a month.

Higher inflation needs to be seen in a broader context: less than 3 percent is well below the recent highs we have seen.

Most economists expect some relief for borrowers next year. The current rate of 4.75 percent is only slightly lower than the 5.25 percent they reached after the inflation shock the United Kingdom suffered.

Monica George Michail, associate economist at the National Institute for Economic and Social Research, said: “We expect the MPC to keep rates unchanged at tomorrow's meeting and gradually reduce them in 2025.

“However, we believe the Bank will remain cautious given high wage growth, global uncertainty surrounding the Trump presidency and inflationary pressures introduced in the latest budget. “Therefore, interest rates may remain higher for longer than previously thought.”

The new figures released today will also increase the feeling of pessimism. Manufacturing production volumes fell at the fastest rate since mid-2020, according to the Confederation of British Industry, the business lobby group.

Production of automobiles, glass, ceramics, furniture and upholstery led the decline, the CBI said.

Its survey of 331 manufacturers said production fell 25 percent in the three months to December.

Ben Jones, chief economist at the CBI, said: “Manufacturers face a perfect storm of weakening external demand, on the one hand, amid political instability in some key European markets and uncertainty over US trade policy. Joined. And on the other hand, domestic business confidence has collapsed in the wake of the budget, driving up costs and leading to widespread reports of project cancellations and order drops.”

Interest rates are expected to hold steady today after a spate of gloomy economic data, notably that inflation was rising again and the economy contracted last month.

Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, said:

“Inflation remains stable for now, like an unwanted guest at a Christmas party hogging the couch into the wee hours of the morning. The question is if it can be changed, or if it is going to ruin our plans for months, consuming our houses and homes and raising the cost of everything again.

“Food and beverage price inflation increased to 2%. Poor harvests in several areas have driven up prices of shopping cart favorites, including olive oil by 26.6 percent in one year and chocolate by 9.9 percent.”