December 23 CPI inflation

People who were banking on a rate cut in Q1 will be quickly revising their forecasts. This is not a huge curveball but it will echo around the corridors of Threadneedle Street and likely see the Bank of England hold rates steady for the time being. Momentum in the mortgage rate war may now ease off slightly.

Today’s CPI announcement has gone much like my New Year's Resolutions. In short, not to plan. Whilst not completely unexpected, a slight increase to 4% is not the news borrowers were hoping for. This shouldn’t trigger an increase in Base Rate from the Bank of England. Stability is key and I hope they will hold. This morning's news is likely to affect Swap rates though, which could bring an abrupt end to the lender price war we’ve enjoyed so far this year.

Whilst it is a small change, we have changed direction, which will be a concern for the Bank of England when setting Base Rate over the coming months. It will certainly put a handbrake on the recent rate cuts this year. Again, we should remember that rates are sensitive to economic figures, and can easily increase without much notice, so for those waiting for rates to fall further, don't dwell. Speak to your broker and reserve a deal as soon as possible.

This is a bump in the road and not ideal ahead of the first Monetary Policy Committee meeting of 2024 on the 1st of February. Although this is expected to be a bump in the road towards the 2% target, it further highlights that continual mortgage rate cuts are not guaranteed.

Consumer Price Index, that stoic sentinel of economic trends. One might expect it to be nimble, to pirouette with the ever-changing dance of the marketplace. Yet, in the realm of tobacco and alcohol, it seems... stuck in the mud. Here, amidst the kaleidoscopic whirl of inflation and deflation, tobacco and alcohol prices have chosen... inertia. They cling stubbornly to their plateau, refusing to budge like a grumpy badger in its sett. While oranges tango with a 10% salsa dip, and petrol performs a wild jive, these two puff and glug away to the same monotonous beat, year after year. So, a reflection that overall the single biggest rise in Inflation for December was Alcohol & Tobacco - no surprise there. Overall these figures are to be expected and I expect February's inflation figures to remain muted. The result? The stabilisers will remain on The Bank of England's Base rate bike, as I can't see them managing to ride down the base rate hill just yet.

This morning's slight increase in inflation will come as a surprise to many, especially borrowers hoping for a continued fall to ease the pressure on their mortgages. The one positive to take away is that it's a small change given the surprise drop last month so should not set hairs running at the Bank of England. It does however probably confirm that we won't see Threadneedle Street cut the base rate for some time yet. We'll see some movement in swap rates and it will be interesting to see how lenders react in the coming days. But for now now the message is of stability. Large swings would be a greater cause for concern.

The latest inflation print is a sober reminder that the additional Christmas spending can see inflation rise despite fuel prices reducing. Whilst the increase is only marginal it could impact the next Bank of England decision in February. Lenders are not likely to increase rates but we may see a cooling in the recent aggressive reductions.

Today's CPI data suggests rates will almost certainly be held steady in the upcoming Bank of England policy meeting. The current tight rate pricing margins likely indicate a pause in rate fluctuations this January as any movement will likely concern lenders' product pricing teams. The property market, amidst these high data reports, seems to be moving towards stabilisation for 2024. Any borrowers remortgaging in the next 6 months must be urged by their advisers to make decisions in real time and not wait for what may or may not be.

Although this isn’t a huge increase, it is a movement in the wrong direction. It shouldn’t materially impact rates in the coming weeks, but it is still advisable to secure the best rate for your circumstances as early as possible, as they can always be reduced if rates continue to fall. However, once they increase, the rates will have gone. Speak to an adviser to help navigate the many rate changes and criteria updates we are seeing on a weekly, even bi-weekly, basis.

A small upwards change that may halt the Bank of England's base rate decisions in the months ahead and this will also impact any rate war that some borrowers expect to continue.

The inflation journey was always set to be bumpy, and the general trend is in the right direction. This slight pop in the headline rate is actually reflected in gilt rates as mortgage lenders are set to pause their price war. I expect inflation to remain around this rate for the next few months before continuing the tumble. That is when lenders will follow suit in earnest.