The recent decision by the Bank of England to raise interest rates again will have come as a shock to nobody, but not everyone would have expected the rise to be as much as 0.75 per cent.
A clear majority of 7-2 voted for the large rise in the November 3rd meeting of the Monetary Policy Committee (MPC), with one member preferring a 0.5 per cent increase and one a 0.25 per cent rise.
The first question anyone seeking a home loan in the East Midlands might ask a mortgage advisor in Derby is the obvious: Having reached three per cent, will rates rise higher, and if so, how far?
Nobody can be certain, but a few hints may have emerged in recent weeks. One is that markets are pricing in further rises to around 4.75 per cent, which may be less than some predicted. Another was a recent hint by the Bank of England governor Andrew Bailey that rates may not go up as much as expected.
Some will correctly note that a rate of 4.75 per cent is nothing abnormal. Historically, it has been the extremely low rates since 2009 that have been anomalous. However, record high house prices are also a part of the equation, even if claims Britain is already in recession have prompted predictions that these will fall in 2023.
Evidence of this already happening has emerged from the Halifax House Price Index, which has followed a month-on-month drop of 0.1 per cent in September with a larger 0.4 per cent fall in October. While this still leaves prices 8.3 per cent higher than in October 2021, the direction of travel seems clear.
While house prices are not part of the Consumer Prices Index measure of inflation that the Bank is striving to get down from its current 10.1 per cent to the target rate of two per cent, lower house prices are a likely consequence of recession, which will reduce demand for some goods and thus help lower inflation.
While that does not spell a healthy picture for the overall economy, it will at least limit the need for more rate rises.
