Bank of England playing chicken with the mortgage market

Rob looks at the complexities surrounding the Bank of England's current monetary policy, particularly its base rate, which is held at 4.75%. With the next decision set for February 6, 2025, Rob highlights the challenges posed by persistent inflation, currently reported at 2.6%, and the implications for the mortgage and property markets. 

KEY TAKEAWAYS

• The Bank of England has maintained the base rate at 4.75%, with the next decision scheduled for February 6, 2025. There are concerns about the potential for sticky and rising inflation, which complicates the decision-making process regarding interest rates.
• The official inflation rate is reported at 2.6%, but there is skepticism about this figure. Many believe that actual inflation is higher, especially when considering everyday expenses like fuel and groceries. The economic environment is characterised by persistent inflation and flatlining growth.
• The recent autumn budget has raised concerns about stagflation, where the economy experiences stagnant growth alongside high inflation. This situation poses significant challenges for the Bank of England in managing monetary policy.
• The Bank faces a difficult choice: keeping interest rates high to combat inflation could harm the mortgage and housing markets, while lowering rates might exacerbate inflation and create a housing bubble. This creates a "damned if you do, damned if you don't" scenario.

BEST MOMENTS

"The Bank of England held rates at 4.75%. The official inflation rate... is at 2.6%. But if you put fuel in your car or go to the supermarket, you're probably finding that prices are going up a little bit more than that."

"They're almost in a damned if you do, damned if you don't situation... If they keep rates up to deal with inflation, then mortgages and the housing market might struggle."

"Rachel Reeves also somehow managed to produce a budget that was inflationary and possibly at the same time deflationary. I'm not sure I've ever seen that before in my life."

"Energy is the economy. Without being self-sustained in energy, that's going to lead to all sorts of issues."

"If you lower rates, I just think it's gonna lead to a much bigger drop moving forward."

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