Bank rate rises back on the table – Shepherd

The Federal Reserve and the European Central Bank (ECB) have already raised rates, while the Bank of England has held off so far. But with the November Monetary Policy Committee (MPC) meeting approaching, should brokers prepare for a possible rate rise in November?

Brokers will be very aware that fixed rate mortgage pricing is not just a function of where bank rate is today, but also where the market expects it will be in the future. Therefore, if markets expect additional hikes in the future, this will increase fixed rate mortgage pricing regardless of what the MPC actually does.

That is exactly what has happened in recent weeks. Expectations of higher future interest rates have pushed up mortgage pricing. Brokers are therefore fielding difficult questions from customers: should they secure a deal now, wait for rates to improve or choose a shorter fixed-term option?

Energy prices could tip the balance

The biggest driver of interest rate movements in recent weeks has been developments in the Middle East. Oil and gas prices are showing little sign of falling, which has a direct effect on petrol, transport and household bills, but the impact can spread much further. If businesses begin to pass higher costs on to customers, the price of everything starts to increase. Furthermore, diplomatic progress on a resolution to the war has been limited, and it now appears the conflict could extend beyond the US midterm elections.

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The longer energy prices stay high, the greater the risk that firms pass on those costs to customers and workers seek larger pay rises. The MPC cannot influence energy costs, but it can try to prevent an energy shock leading to a lasting rise in wages and prices. It’s worth noting that interest rate changes take time to affect the economy; waiting too long to raise rates when needed risks inflation becoming harder to control. A small rise could therefore be a precaution to reduce the risks of broader inflation.

Three members who voted to hold in September – Andrew Bailey, Sarah Breeden and Clare Lombardelli – have since signalled that they are moving closer to supporting a rise for these reasons. If they vote to hike in November alongside Huw Pill, Catherine Mann and Megan Greene, who voted for a hike in September, that would be enough votes to secure a 0.25% increase. Market pricing now suggests there is over a 90% chance of a hike in November.

In total, four quarter-point rises are expected by the market over the next 12 months. However, the bank’s chief economist, Huw Pill, recently said he does not expect rates to rise as much as markets predict, and would need stronger evidence of embedded inflation or wage pressures before committing to hiking to this extent.

For borrowers, the deal available to them will depend on market expectations across the full term of the product they choose, lender competition, product fees and their own circumstances.

This is where brokers bring clarity. A customer may be tempted to wait for a cheaper deal, but there is no guarantee that one will appear. Others may value the certainty of fixing now, even if rates later fall. Brokers can explain the trade-off, compare true costs rather than headline rates alone, and consider whether a product transfer, remortgage or different fixed rate option best fits the customer’s plans.

Timing also matters. In a fast-moving market, products can be withdrawn with little notice. Brokers can help customers prepare documents early, understand lender criteria and act quickly when a suitable deal becomes available. They can also keep cases under review before completion, where lender rules allow, in case pricing improves.

Plus, the outlook could still change quickly. For brokers, the priority is to help customers to make a decision that best suits their needs right now.