There’s a 50:50 chance of yet another Bank of England base rate rise this week according to a leading business analyst.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says that a week ago it looked a dead cert that there would be a BoE base rate rise this week, following inevitably by lenders raising interest rates.
Now, however, she says it could go either way.
”It was a long week for the banking sector with the collapse of [Californian bank] SVB, real weaknesses emerging at First Republic Bank and then the dramatic takeover by UBS of Credit Suisse, as long-brewing troubles blew up into a big loss of confidence. However, systemic risk to the sector is still considered to be low, given that larger banks have bigger capital buffers from the financial crisis and stable deposits.”
She continues: “Trading is set to remain volatile, with investors shaken by the events of the past week, and there will be concern that more rate rises will prompt further instability. Central banks though have indicated that they are standing by and will use all tools available to limit potential contagion and further financial instability.”
Streeter says the threat from inflation hasn’t receded and while it is now expected to drop back to 2.9 per cent by the end of the year, the Bank will still be concerned about pressing pause at a time when inflation remains sky-high.
“Before the turmoil in the financial sector, we were getting strong hints from the Bank indicating more rate rises were on the cards. The European Central Bank has just raised rates and the [US] Fed is also expected to do so ahead of the Bank of England announcement.
“It means a pause is by no means guaranteed, and policymakers may want to show they are still determined to ensure inflation keeps heading down by raising rates, while standing by with other tools to help repair damage to parts of the banking engine should they occur.’’
Another Hargreaves Lansdown specialist, Sarah Coles - head of personal finance at the business consultancy - says mortgage markets were “all over the place” in recent days, ahead of the BoE announcement.
“After months of gradual rate cuts on the back of lower rate expectations, the Bank of England’s hints of more rate rises saw swap rates increase, and mortgage rates started to tick up. We were expecting last week to deliver more of the same, but the banking turmoil pushed swap rates down, making fixed-rate deals cheaper to price, and persuading some to cut rates
“It means we’re likely to have an incredibly mixed picture, with some mortgage rates rising and others falling. Some of the best deals may be gone in a flash too. It means it’ll be vital to consider all your options, and act fast, if you’re looking for a mortgage. It may make sense to use a broker who can check what’s out there and keep on top of the best deals.
“For anyone trying to decide whether or not to fix their mortgage, it’s going throw more confusion into the mix.
“The level of uncertainty now means we can’t be entirely certain whether a variable rate deal will rise from here. There’s a reasonable chance it will later – even if we get a pause this month – but we don’t know when that might be, or how long it will remain higher before falling back. Some people will be prepared to take their chances in return for the likelihood of a lower rate later. Others will see the average five-year fix below 5.0 per cent, and decide it’s a price worth paying for more certainty.”
Via @LandlordToday