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"Markets more confident that a rate cut will come in September shows the headline inflation figure doesn't always tell the full story"

ended 14. August 2024

Though headline inflation rose this morning, markets have increased bets on a base rate cut in September due to an improvement in core and services inflation. Markets had only priced in a 35% chance of a September cut prior to today's print, but are now seeing a 50/50 chance, which could be a boost to borrowers.

Michael Brown, Senior Research Strategist at the forex broker and CFD trading platform, Pepperstone, put it as follows: "As absurd as it sounds following this morning’s rise in UK headline inflation, another base rate cut is now more, rather than less, likely this year. The headlines are focusing on the headline inflation number, but that’s not the figure the policymakers at the Bank of England will be focused on. The most important takeaway in this morning’s data is that core inflation fell to 3.3% from 3.5% and services inflation dropped sharply to 5.2% from 5.7%. Those key metrics will mean borrowers could get the next rate cut they have desperately been waiting for before the year is out. And that bodes very well for the property market. There is a tendency to look at the headline numbers when the devil, as ever, is in the detail.”

Newspage asked experts for their views on whether a rate cut could still be on the cards in September, below.

6 responses from the Newspage community

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Justin MoyVerified
Managing Director at EHF Mortgages
Markets more confident that a rate cut will come in September shows that the headline inflation figure doesn't always tell the full story. The reality is that there have been some significant improvements as a whole. Food costs are improving, services inflation has seen a significant drop, and fuel costs seem to be the main reason the headline rate has faltered. This could still keep a September base rate cut on the table. Also, what happens across the pond may also twist arms anyway, but with mortgage rates improving, we could see a strong end to 2024 as confidence starts to build again in the UK.
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Ranald MitchellVerified
Director at bad credit mortgage specialists Charwin Mortgages
We expect more base rate cuts this year, just not in September. Despite headlines focusing on rising inflation, the real story is in the data: core inflation dipped to 3.3%, and services inflation dropped sharply to 5.2%. This is the news that matters to the Bank of England and bodes well for rate cuts sooner rather than later. We've started to turn the corner and there's more exciting times ahead for mortgage borrowers after several miserable years.
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Ben PerksVerified
Managing Director at Orchard Financial Advisers
There is more chance of Elon Musk and Keir Starmer making friends in September than the country getting a base rate cut. We could see the most encouraging data ever produced, and it wouldn’t convince the Monetary Policy Committee to reduce the base rate next month. They have set their sights on a slow recovery and they’ll be unwavering in that, unfortunately.
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David StirlingVerified
Independent Financial Advisor at Mint Wealth
The speculation of back-to-back rate cuts derived from these key metrics is a difficult and confusing one. However, if if Michael Brown is correct we could see out the end of the year with a boost to borrowers coming off very low fixed rates and first-time buyers trying to get on the ladder. Services inflation had been propping up inflation figures recently and the fact that is has fallen to 5.2% can only help persuade the policymakers to give borrowers some relief as the summer ends.
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Riz MalikVerified
Independent Financial Adviser at R3 Wealth
The Bank of England will be very concerned about the message it sends to the market about the speed of their rate cutting cycle. If they were seen to make consecutive cuts without strong economic justification, this would undermine their previous comments. November is more realistic than September at this moment in time but that could all change as we still have more labour market data and another inflation print to come.
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Rohit KohliVerified
Director at The Mortgage Stop
The inflation figures this morning do not rule out further base rate cuts this year. However, given the inherently cautious nature of the current Monetary Policy Committee, as evidenced in their previous decisions, it would pleasantly surprise me if they made another reduction in September, especially if inflation next month remained above the 2% target. A more likely scenario is a cut in the following meeting in November to close out the year.