Why inflation remains the real enemy of both homeowners and savers - Martese Carton

Andrew Bailey, the Governor of the Bank of England, is on record as saying that he expects inflation to fall quite rapidly before the summer. However, because of last month’s unexpected rise in inflation, the Monetary Policy Committee have now left their options for future rate decisions open, saying that the financial and economic outlook has become more uncertain.

It now says it needs to see more evidence of how the steep rise in borrowing costs since late 2021 is affecting the UK economy.

The key question is whether this means that bank base rates could now remain at 4.25 per cent or whether there are more increases to come.

Andrew Bailey has warned that if inflation becomes ‘embedded’, interest rates will have to go up further.

There’s no doubt that inflation remains the real enemy of both homeowners and savers.

The next scheduled meeting of the MPC isn’t until May and the Bank of England is clearly hoping that by then it will have evidence that the rapid increases in interest rates over the past 15 months are having the intended effect and that inflation is heading downwards.

However, there’s no doubt that this interest rate uncertainty is impacting the housing market.

First time buyers are very cautious about entering a market when they don’t know if interest rates have peaked.

Demand for mortgages has fallen significantly over the last few months

as potential borrowers weigh up whether this is the right moment to enter the housing market.

Since 2020, interest rates have been volatile as the world tried to cope firstly with the Covid pandemic, and then with the impact of the war in Ukraine.

More recently, the rapid interest rate rises following last September’s mini budget have been a hammer blow to millions of borrowers.

The other key part in this mortgage conundrum is the fact that over 1.4 million borrowers will be coming off existing fixed rate deals this year – with many of them currently being on sub 2 per cent deals.

With a generally shrinking mortgage market, lenders will be keen to hang on to their market share, and borrowers will be desperate to keep their rates as low as possible.

All these factors simply highlight that the uncertainty around the future direction of interest rates remain.

It’s imperative therefore that we now start to see inflation start to fall – and fall quickly.

Once this happens, confidence will start to return to both the financial and housing markets and first time buyers can once again plan their futures with a degree of certainty.

Martese Carton, is the director of Mortgage Distribution at Leeds Building Society, which was founded more than 140 years ago.