GDP grows by just 0.1% as experts warn Bank of England rate cuts are unlikely

GDP has grown by just 0.1% as experts warn Bank of England rate cuts are unlikely for the foreseeable future in a blow to borrowers.

The latest Office for National Statistics (ONS) data showed the UK economy grew by just 0.1% in August, prompting one expert to tell Newspage that borrowers have "more chance of finding a pot of gold at the end of a rainbow” than an interest rate cut from the Bank of England.

Official figures from the ONS show gross domestic product (GDP) rose by 0.1%, defying forecasts of a 0.1% contraction.

But experts say it may make the Bank of England raise its base rate rather than deliver a cut, leaving borrowers facing continued uncertainty over their monthly repayments.

Production output jumped by 0.8%, although the wider picture remained mixed. Services output was flat, while construction shrank by 0.2%.

Will the Bank of England cut interest rates?

Riz Malik, Independent Financial Adviser at Southend-on-Sea-based R3 Wealth, believes borrowers are facing the possibility of rates rising before they fall.

He said: “If there have been no rate increases from the Bank of England before we start singing Jingle Bells we will have been very lucky. As for rate cuts, I think you have more chance of finding a pot of gold at the end of a rainbow.”

Chris Barry, Director at London-based Thomas Legal, believes that stronger-than-expected GDP growth does not mean the economic outlook has improved. 

He commented: “Positive growth data did catch most off guard but this doesn’t mean we are out of the woods. Many members of the MPC feel a rate rise is the tool to use to battle rising inflation. 

"However, a rate rise in November would certainly see buyer demand decrease further making it a poor year for housing transaction numbers as ordinary working people feel more of a pinch yet again.”

What does this mean for mortgage rates?

David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said we can no longer dismiss the possibility that rates could go the other way.

He added: "The economy is moving forward, but it’s doing so in first gear. Normally anaemic growth would strengthen the argument for rate cuts, but inflation has rather inconveniently got in the way. A cut isn’t impossible, but hope for borrowers looks some distance away with three MPC members already voting for a hike. 

“Sadly we can no longer dismiss the possibility that rates could go the other way first. Fixed mortgage pricing is influenced by swap rates and market expectations rather than simply today’s Bank Rate, so there could still be movement in mortgage rates, but the prospects of a rapid series of Bank Rate cuts have clearly diminished.” 

Harry Goodliffe, Director at Winchester-based HTG Mortgages, said that persistent inflation and concerns over potential rate rises had already pushed rate cuts off the immediate agenda.

He said: "A rate cut wasn't on the table, so I’m not sure why anyone’s asking. Inflation is over 3%, the Bank said in September it was more worried about rises than cuts, and 0.1% growth doesn’t change either of those things. 

“If anything, it makes the Bank’s job harder. The economy is barely moving, and they still can’t help it. The Government keeps promising growth and homes, and in the same month we got almost no growth and fewer builders working.”

Tony Sanchez, Founder at Bridging Loan Directory, warned that property borrowers should make sure their plans still work if a rate cut doesn’t come.

He said:  "One month’s GDP figure is not a verdict on interest rates. Growth of 0.1% does not rule out a cut, nor does it make a rise inevitable. The Bank will weigh inflation, wages and the wider economy. Flat services and falling construction also show why positive headline growth may offer little comfort to individual businesses. From Bridging Loan Directory’s perspective, the practical issue is what this uncertainty means for property finance. 

"A borrower planning to repay a bridging loan through a mortgage needs that refinancing to be achievable without relying on rates falling first. For developers, delays to building or selling can mean additional interest costs. The useful question is therefore: does the project still work if borrowing costs stay higher and repayment takes longer? A rate cut should improve a workable plan, not be the thing that makes it workable."

ENDS