City markets see a 50/50 chance that the Bank of England will cut interest rates by March, after inflation fell faster than expected again in November.
The rate of inflation fell to just 3.9%, well below the expected 4.3% and October’s 4.6%. That brings the rate of price rises much closer to the Bank’s 2% target, and means prices have only risen by 0.7% over the last six months.
Andrew Bailey and the Bank of England have repeatedly warned that rate cuts may not be coming as soon as hoped, but the latest release has still led to markets pricing in early rate cuts.
Swap markets now imply that there is a 50% chance that interest rates will be cut by March, and by the end of the year rates could be as low as 3.75%.
The decline in expected interest rates is likely to be passed on to borrowers in the mortgage market in the coming days, with lenders cutting their rates further.
Riz Malik, director at mortgage broker R3 Mortgages said: “All the stars have aligned for a Christmas miracle as we head closer to the 2% inflation target.
“The fall was greater than expected and has increased the likelihood of rate cuts in 2024. Mortgage lenders will be gearing up for January sales, which will be music to the ears of those borrowing in 2024 and should help boost the property market.”
Emma Jones, managing director at broker, Whenthebanksaysno, said: "Lots of positives for the mortgage market here. Predictions are saying that May will see at least a 0.25% reduction in rates but drops in inflation could help us see those reductions much sooner. It also reduces the chances of more rate hikes.
“The competition from high street lenders will start to heighten as they scrabble for business with rate wars likely coming in again January and through the first quarter. This could be a good time for borrowers again after a very unstable 12-18 months. This is a pre-Christmas boost for borrowers.”
According to Moneyfacts, the average two-year fixed mortgage rate is 5.97%, while the average five-year fix is 5.57%.
