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Financial markets predicting base rate peak of 5.75%

ended 13. June 2023

After a tumultuous morning, the financial markets are now predicting a base rate peak of 5.75%. If this happens, what impact will it have on borrowers, the property market, savers and investors - and businesses more broadly? 

6 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
If the Bank of England keep hiking rates to 5.75% there will be irrevocable damage done to the economy and the mental health of many homeowners. It’s beyond doubt that increasing rates doesn’t reduce inflation when the cause of rising prices is a restriction on supply. These rises are counterproductive and will kill off a weak and nervous economy. House prices will crash, unemployment will rise and repossessions will go through the roof. With inflation already falling, and set to fall much further over the next two months, there needs to be a pause in rate increases. Confidence in the governor is rock bottom and the government need to consider if he’s the right man for the job.
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John Choong
Senior Equity Research Analyst at Investing Reviews
Average weekly earnings in the three months to April showed that wage pressures are reversing course and catching up to inflation after simmering off for the past couple of months. This has sparked fears of a wage-price spiral, as markets now price in a terminal rate of 5.75%.

But despite gilt yields jumping this morning, the key takeaway is that April's data is heavily influenced by a 9.7% increase in minimum wage. This will be subject to careful analysis by the Bank of England when assessing its case for a higher terminal rate.

The one bright spot for markets is that employment change beat estimates and continues to grow, as strong demand for workers is slowly being met. Provided this trend continues, wage pressures should begin to ease in the months to come.

Perhaps most encouragingly, unemployment remains low. This will be the most important factor for the housing market. And if the UK is going to avoid a recession, the Bank of England will need to raise rates diligently.
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Graham Cox
Director at Bridging Hub
The base rate hitting 5.75% would be cataclysmic for the housing market. Property transactions would come to a virtual standstill, repossessions would soar, and businesses would go bust at an unprecedented rate.

It would also crash house prices, but sustainably cheaper housing is exactly what this country desperately needs to build a fairer society and productive economy again.
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Jamie Lennox
Director at Dimora Mortgages
If the base rate reaches 5.75% it could be a ticking time bomb for the UK economy and more so for the housing market. We are seeing clients already in financial distress with the levels they have reached and further increases could create widespread damage across the housing sector which will take years to recover from.
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Rob Gill
Managing Director at Altura Mortgage Finance
A more pertinent question might be what will happen to borrowers and the property market if the base rate doesn't increase quickly and significantly? As inflation starts to drop elsewhere, financial markets are increasingly seeing the UK as an outlier, already showing the highest inflation amongst G7 countries and forecast to be higher in 2023 than nearly any G20 member save for Argentina and Turkey. Against this backdrop, the Bank of England have little choice but to do everything possible to persuade global markets they are determined to tame UK inflation.
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Mark Grant
Business Finance Adviser at The Business Finance Branch
We wouldn't have to wait for base rates to actually hit 5.75% for the impact on many businesses and the wider economy to be felt. Business confidence will be shaken, which in turn hits investment, hiring and growth. And like mortgage markets, business finance lenders have to for the most part borrow to lend to businesses - and we are already starting to see higher rate expectations increase the cost of debt funding in some products. Business owners and directors are in for a rollercoaster ride to see out this inflation/interest rate cycle - and their confidence is facing the downslope at the moment.