Pressure on BoE to cut base rate grows as recession is confirmed

Pressure on BoE to cut base rate grows as recession is confirmed

Figures from the Office for National Statistics (ONS) estimated that gross domestic product (GDP) contracted by 0.3 per cent in Q4 2023, after a 0.1 per cent fall in the previous quarter. 

Two successive quarterly declines are required for an economy to enter a recession, and while the decline was larger than expected, the contraction has been described as shallow. 

Marcus Brookes, chief investment officer at Quilter Investors, said the UK was technically in a recession, but it was potentially a “shallow and short-lived one that may not reflect the true state of the economy”. 

He said there would likely be a muted recovery in the first quarter of this year. 

Nicholas Hyett, investment analyst at Wealth Club, agreed that the recession was not an immediate cause for concern, adding: “While recession is clearly bad news for the UK economy, it’s worth bearing in mind that, as recessions go, this is still a very mild one, and might yet get revised out of existence altogether.

“Whether today’s recession transforms into something that’s remembered outside the pages of an economic history textbook remains to be seen.” 


Base rate predictions 

Max Shepherd, group economist at Yorkshire Building Society, said uncertainty around the central bank’s next move remained as data on the wider economy presented a mixed picture. 

He said: “On Tuesday, ONS data showed unemployment fell to 3.8 per cent year-on-year (YOY), which was a surprise to market forecasters, who expected an increase to four per cent. Wage growth is slowing – good news for the BoE – but not as much as expected.

“On Wednesday, it was announced inflation remained at four per cent, below expectations, but services inflation rose, one of the main data points stopping the BoE from lowering interest rates. Finally, GDP data were published showing that the UK was in a technical recession in the second half of 2023, after two consecutive quarters of negative growth – albeit only just.” 

Shepherd added: “Together the data are inconclusive and provides limited guidance for the BoE around when is an appropriate time to start cutting interest rates.” 

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said there would now be expectations on the central bank to lower the base rate, which was held at 5.25 per cent at the last base rate meeting. 

She said: “The weak growth data will pile pressure on the BoE to cut interest rates sooner rather than later to bolster the economy, which has been heavily impacted by high inflation and still-high borrowing costs. 14 interest rate rises between December 2021 and August 2023 are clearly taking their toll on consumers. 

“Uncertainty may be rife, but even Governor Andrew Bailey remains optimistic that better times lie ahead. Households should err on the side of caution, however, constraining expenditure where they can and focusing on paying down excessive debts and building up robust emergency savings. Borrowing and living costs remain relatively high, so preparing for all eventualities will help households survive any further financial shocks.” 

Jason Hollands, managing director at Bestinvest by Evelyn Partners, said: “It is important to recognise that financial markets are forward-looking. From here on, confirmation that we have been in a mild recession means inflation should continue to moderate and the case for interest rate cuts and lower borrowing costs for companies strengthens.” 

House prices up 2.5 per cent YOY in ‘positive start’ to 2024 – Halifax

House prices up 2.5 per cent YOY in ‘positive start’ to 2024 – Halifax

According to the latest Halifax report, average house prices in January rose 1.3 per cent month on month, which is the fourth monthly rise in a row. The monthly increase is equal to a £3,900 rise in the average house price since last month.

From a regional perspective, Northern Ireland recorded the strongest growth across all nations or regions in the UK, at a 5.3 per cent annual increase. The average house price is now £195,760, which is £9,761 higher than in January last year.

Scotland and Wales both reported positive annual growth of four per cent, bringing their average house prices to £206,087 and £219,609 respectively.

The North West’s annual house price growth was 3.2 per cent, Yorkshire and the Humber came to 2.8 per cent, the North East was pegged at 2.8 per cent and the East Midlands reported 0.5 per cent annual growth.

The South East’s annual house price fell 2.3 per cent to an average of £379,220 – a fall of £8,866.

London remains the most expensive region, with average house prices coming to £529,528, but prices have fallen by 0.4 per cent YOY.


House price rise ‘positive sign’ for market but ‘affordability challenges’ will stay

Kim Kinnaird, director of Halifax Mortgages, said that the “recent reduction of mortgage rates” from lenders due to increased competition and “fading inflationary pressures and a still-resilient labour market” had led to “increased confidence among buyers and sellers”.

“This has resulted in a positive start to 2024’s housing market. However, while housing activity has increased over recent months, interest rates remain elevated compared to the historic lows seen in recent years, and demand continues to exceed supply,” she said.

Kinnaird continued that, for those looking to buy a first home, the average deposit stood at £53,414, around 19 per cent of the purchase price.

She noted that around two thirds of new buyers were looking to buy in joint names to better save for a deposit, a move she said was “not surprising”.

“Looking ahead, affordability challenges are likely to remain and further modest falls should not be ruled out, against a backdrop of broader uncertainty in the economic environment,” Kinnaird added.


‘Over-optimism will stop any recovery in its track’

Karen Noye, mortgage expert at Quilter, said that the rise in house prices was a “positive sign that the housing market is getting back on its feet”, with mortgage rate reductions due to heightened lender competitions and base rate cut expectations having “lured in more buyers in the new year, feeding into the cautiously optimistic outlook for the housing market this year”.

She continued: “The Bank of England (BoE) held interest rates once more at its latest Monetary Policy Committee (MPC) meeting, and it is unlikely to lower them for some time yet unless inflation starts to drop more rapidly.

“Though we are starting to see a gradual increase in confidence and buyers making a tentative return to the market, there are likely many more prospective buyers still stuck in ‘wait-and-see’ mode who are holding out in the hopes of securing cheaper deals once the Bank switches stance. Once the BoE does begin making rate cuts, we will likely see house prices buoyed further as there remains a serious lack of supply.”

Noye said that those looking to buy a property should seek professional mortgage advice to ensure that they were making the best possible decision for their circumstances in a “relatively unpredictable time”.

Mark Harris, chief executive of mortgage broker SPF Private Clients, agreed that the housing market had had a “strong start” as buyer and seller confidence was boosted by interest rate holds and the prospect of cuts on the horizon.

“However, there will still be bumps in the road ahead. While increased competitiveness has led to lower mortgage rates this year, some lenders have also been raising rates. Swap rates, which underpin the pricing of fixed rate mortgages, have been rising since the turn of the new year, resulting in some ‘best buy’ mortgage rates increasing.

“Borrowers who see a mortgage deal they like the look of would be wise to secure it before it disappears, for peace of mind. If, when they come to take the mortgage out, rates have fallen again, they should be able to move onto a cheaper deal,” he added.

Harris said that for those remortgaging, there would still be a rise in payments, but the “pain will not be as bad as it could have been”. He urged borrowers to seek advice and plan as far ahead as possible.

Jeremy Leaf, north London estate agent and a former Royal Institution of Chartered Surveyors (RICS) residential chair, said that buyer confidence was higher at the start of this year, with its offices seeing more valuations, listing and viewings.

“Lenders lowering mortgage repayments in anticipation of a falling base rate later in 2024 following the faster-than-expected drop in inflation has increased buyer confidence.

“However, lingering cost-of-living worries mean the market remains price-sensitive, so it is only the realistic sellers who are able to take advantage. Over-optimism will stop any recovery in its track,” he said.


Top 10 most read mortgage broker stories this week – 02/02/2024

Top 10 most read mortgage broker stories this week – 02/02/2024

Continued rate cuts by major lenders like Halifax, Natwest and Barclays also piqued readers’ interest, along with a report from Cifas that one in six will commit mortgage fraud to get a deal.

Santander’s results for 2023 proved popular with readers, with key highlights including gross mortgage lending coming to £13.1bn, its mortgage book coming to £175.2bn and £39.3bn worth of mortgage on its book due to refinance.


Halifax slashes remortgage rates; Natwest withdraws deals – round-up

One in six will commit mortgage fraud to get a deal – CIFAS

Barclays changes rates; Skipton trims pricing – round-up


Santander’s gross mortgage lending plunges to £13.1bn in 2023


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Bank of England maintains base rate at 5.25 per cent


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Bank of England maintains base rate at 5.25 per cent

Bank of England maintains base rate at 5.25 per cent

The MPC voted by a majority of 6-3 to maintain the base rate at 5.25 per cent, however, two members preferred to increase the base rate by 0.25 per cent to 5.5 per cent. One member said they would prefer to lower the base rate to five per cent.

It is the fourth time in a row that the base rate has been held at 5.25 per cent. 

The majority of industry experts expected the base rate to be held this week as the slight rise in inflation could quell immediate urges for rate cuts.

The MPC said that global GDP growth was “expected to pick up gradually during the forecast period, in large part reflecting a waning drag on the rate of growth from past increases in bank rate”.  It added that business surveys were consistent with an “improving outlook for the near term”.

On the labour market side, the MPC said that the market had started to ease but remained tight and it warned that unemployment was expected to rise further.

Regarding inflation, the MPC said that it expected CPI inflation to fall temporarily to the two per cent target in Q2 2024 before rising again in Q3 and Q4.

It said that by the end of the year CPI inflation would be 2.75 per cent, 2.3 per cent in two years’ time and 1.9 per cent in three years’ time.

The MPC said: “The restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market. In the Committee’s February forecast, the risks to inflation are more balanced. Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated.

“As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the two per cent target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the two per cent target dissipates.”

Top 10 most read mortgage broker stories this week – 26/01/2024

Top 10 most read mortgage broker stories this week – 26/01/2024

Reaction to the scheme was mixed, with some saying that it could help some first-time buyers but the criteria for a scheme would be strict and there was a risk of negative equity.

Other stories that piqued reader interest include news of a High Court date being set for the TSB Whistletree mortgage prisoner case, with the outcome having repercussions for mortgage prisoners as whole.

Mortgage rates have also continued to come down despite swap rates going up, and this also proved of interest to readers.

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Average mortgage rates continue to fall despite swap changes – Rightmove


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Experts predict the UK economy will avoid recession

Experts predict the UK economy will avoid recession

The combination of these factors mean the UK economy could avoid a recession in 2024. This is despite the risk of trade disruption in the Red Sea due to the Hamas attacks.

Analysts at the EY ITEM Club expect the UK economy to grow 0.9 per cent in 2024, up from the 0.7 per cent growth projected in October’s Autumn forecast.

High inflation and expensive borrowing costs have been two of the biggest obstacles to growth and, with both showing encouraging signs of subsiding, prospects for late 2024 and beyond appear brighter.

The EY ITEM Club’s GDP growth expectations for 2025 have been upgraded from 1.7 per cent to 1.8 per cent, although 2023 growth predictions have been downgraded from 0.6 per cent to 0.3 per cent.

Inflation is expected to fall faster than expected, reaching the Bank of England’s two per cent target in May and averaging 2.4 per cent in 2024. The base rate is also expected to fall significantly in 2024, with 100-125 basis points of rate cuts predicted to be made this year.

Hywel Ball, EY UK chair, said: “While challenges remain, the forecast suggests that the UK’s period of economic stagnation is slowly coming to an end. 

“Households and businesses are still facing a tough outlook in 2024, due in part to the lagged effect of interest rate rises, but slowing inflation and anticipated bank rate cuts should help build economic momentum as the year progresses.”

More positive news for UK economy

Other positive data comes from the latest “flash” composite purchasing managers’ index from S&P Global and the Chartered Institute of Procurement and Supply. The index has risen to 52.5 in January from 52.1 in the previous month, beating City analysts’ expectations.

The figures show that the index has been above the 50-point threshold that separates growth from contraction for three months in a row. 

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Business activity and confidence are being driven in part by hopes of faster economic growth in 2024, in turn linked to the prospect of falling inflation and commensurately lower interest rates.”

Jeremy Hunt is also expected to lower taxes in the next budget on 6 March, further stimulating demand. Meanwhile, most expects are still expecting a base rate cut in the coming months despite the rise in inflation in December

Gabriella Dickens, at Pantheon Macroeconomics, said: “The PMI data remains consistent with the Monetary Policy Committee being able to cut interest rates this year, but at a more gradual pace than investors currently expect. We still look for a 75-basis-point reduction in the bank rate this year, slightly less than the 100 basis points implied by OIS [overnight index swap] rates.”

Base rate expected to be held at 5.25 per cent next week

Base rate expected to be held at 5.25 per cent next week

Expects are mostly predicting that the first base rate cut could come in May, despite inflation rising slightly in December.

Experts at Hargreaves Lansdown reckon some committee members could vote for a rate cut this month – but the votes won’t be enough to sway the majority decision from a hold on rates.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “With inflation ticking back up in December, it’s likely to have quelled immediate urges from policymakers around the table for rate cuts any time soon. 

“Given the ultra-cautious stance three of the nine members of the MPC have taken towards inflationary risks, having voted for a rate hike at the last meeting, the chances of a reduction in the base rate at this gathering look very slim indeed.”

Reports show that business activity has had a spring in its step since the start of the year, adding to hopes of resilience ahead and dimming recession fears.

‘No chance’ of base rate cut in February

Meanwhile, a Reuters poll showed economists saw no chance of a rate cut on 1 February, but a slim majority expected one before mid-2024.

Investors are betting that the bank will start cutting the base rate as early as May, with three more cuts over 2024 taking it to 4.25 per cent from 5.25 per cent now.

Sanjay Raja, a Deutsche Bank economist, said: “Big picture, we think lots will need to go right to give the MPC enough confidence to adjust bank rate lower from Q2 24 onwards.

“But given downside misses to GDP growth, private-sector pay momentum and services CPI in recent months, we continue to think that rate cuts remain firmly in play from May.”

Capital Economics has “penciled in” the first rate cut for June and predicted that rates will fall to three per cent in 2025 rather than to 3.50 or 3.75 per cent as priced into the market.

What will a rate hold mean  borrowers

Competition in the mortgage market remains fierce. Mortgage rates have fallen significantly from a recent peak for the average two-year rate of 6.85 per cent at the start of August 2023, to 5.58 per cent. A major chunk of the drop has taken place over the past month, when average two-year rates fell almost half a percentage point, according to Moneyfacts.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “December’s bump in inflation dented market confidence about the number of rate cuts that could be on the cards for 2024, and there has been a muted reaction in the mortgage market, most strikingly Santander’s decision raise rates 0.2 percentage points.

“If you have a remortgage looming, or you’re planning to buy, and this has struck fear into your heart, then the good news is that this isn’t expected to be enormously widespread, and the general direction of travel for rates in the coming months is still likely to be downwards. The Santander announcement came sandwiched between cuts from Barclays and Nationwide, so it’s the exception to the rule right now.”

Base rate cut still expected despite inflation rise

Base rate cut still expected despite inflation rise

UK inflation rose to four per cent in December 2023, up from 3.9 per cent in November. This was the first increase since February 2023, and came above market forecasts of 3.8 per cent.

The Bank of England raised interest rates last year in a bid to tackle the pace of price rises, which has put household finances under strain. Energy prices, in particular, have made it tricky for many households to make ends meet.

The latest inflation figures prompted concern that consumers would have to wait a bit longer than predicted for the first fall in the base rate.

However, experts are now saying that the small rise in inflation is unlikely to change the big picture.

Julian Jessop, economics fellow at the  Institute of Economic Affairs, said: “Inflation is still likely to fall to the two per cent in April and the markets will continue to price in large rate cuts later in the year. Inflation is still lower than the Bank of England’s forecasts, which predicted an average rate of 4.6 per cent in 2023 Q4 and 4.4 per cent in 2024 Q1.

“Higher inflation in December was partly driven by a few temporary factors, including changes in tobacco duties, air fares, and several components of ‘recreation and culture’. In the meantime, the labour market continues to cool and growth in both the money supply and credit are still weak.

“Inflation will probably also be around four per cent in January, but the numbers should then drop rapidly again, especially in April when the Ofgem cap on domestic energy bills will be lowered sharply.”


Summer base rate cuts likely

According to analysts at Oxford Economics, even before the recent falls in oil and gas prices, the Bank of England’s inflation forecasts had looked too high. The group is expecting the Bank of England to lower its projections significantly in February’s Monetary Policy Report, as it begins to prepare the ground for rate cuts. 

Meanwhile Ruth Gregory, deputy chief UK economist at Capital Economics, said she expected inflation to fall below the Bank’s two per cent target in April, which would leave policymakers “in a position to cut interest rates by June”.

Sarah Coles, head of personal finance at Hargreaves Lansdown, agreed that the “trend is likely to be downwards” on interest rates, but warned that “there are likely to be more knocks on the way, with conflict in the Red Sea raising the risk of supply shortages, which could feed into higher prices”.


GDP to grow…slowly

Analysts at ING predict modest but positive quarterly GDP growth through 2024. The bank pointed out that policymakers at the Bank of England are heavily focused on services inflation and wage growth as a driver of policy. 

It said that it is “these factors, as well as the scale of any fiscal stimulus at the March Budget, that we think will determine the start date of BoE rate cuts.”

ING’s base case is currently August for the first rate cut, “although we’d bring that forward if spring tax cuts are relatively modest and/or the inflation numbers undershoot our expectations over the next couple of months.”

Inflation rise ‘blip’ that won’t reverse rate drops but beware swap rises – analysis

Inflation rise ‘blip’ that won’t reverse rate drops but beware swap rises – analysis

Inflation rose to four per cent in the year to December 2023, a surprise increase from 3.9 per cent in November, according to the Office for National Statistics. This is the first rise since February 2023, and comes above market forecasts of 3.8 per cent.


Inflation rise: Blip, bump or bomb?

The majority of industry insiders believe that the rise in inflation is temporary and that it is likely to continue to fluctuate over the next year, rather than continue on the ascent.

Justin Moy, managing director at EHF Mortgages, said: “The inflation [increase] looks to be a blip given the isolated product lines that have caused this small rise, so it’s not a disaster.”

Peter Stamford, mortgage expert at The Mortgage Uni, agreed: “Inflation’s recent uptick appears to be a minor blip, not derailing the trend of mortgage rate cuts.”

However, Austyn Johnson, founder at Mortgages For Actors, was more circumspect in his response, noting that brokers and borrowers alike need to keep a watchful eye on swap rates.

He said: “If swap rates remain unchanged… the increase won’t make much difference. If this makes swap rates rise though, we could see a wave of lenders raising rates again and then a bumpy up/down road ahead. Stability in the market is key, and any bumpiness will just cause issues.”


Mortgage rates stable

Given the consensus that the inflation rise is likely to be a bump in the road, the majority of brokers feel that mortgage rates, which are currently on a downward trajectory, should keep falling, but at a slower pace.

Marcus Wright, managing director at Bolton Business Finance, said: “A tiny 0.1 per cent increase in the CPI inflation figure for December is unlikely to change the downward pressure on mortgage rates. We are seeing more customers enquiry about variable rate commercial mortgages, as they are expecting rates to come down in the next one to two years.”

Richard Thompson, director at Abbeydale Mortgages, concurred with that view.

He said: “I believe that despite the rise in inflation, the trend of decreasing interest rates on mortgages is likely to persist. Lenders are currently engaged in a price war, demonstrating a strong desire to still lend.”

Matt Smith, Rightmove’s mortgage expert, noted that the overall picture was still ‘positive’ but that lenders could potentially pause for breath.

He said: “I’d expect swap rates to rise a little in reaction to today’s surprise inflation figures. Average rates had been falling pretty sharply, but this is likely this to slow as lenders take a more cautious approach over the next few weeks. The big picture is still positive for mortgage rates, with rates more stable and attractive for movers than a year ago.”


Base rate bounce?

Opinion was divided on what the rise would mean for the Bank of England (BoE) base rate, although a decrease now seems further off than ever, despite a number of investment banks and financial institutions predicting a fall as early as the spring.

Most commentators felt that the central bank would hold the base rate, despite the uplift to inflation; however, several were somewhat more pessimistic.

Gary Bush, financial adviser at, said: “This [rise] shouldn’t have any effect on the next BoE base rate meeting on 1 Feb. However, it does make our earlier prediction of the first base rate reduction at March’s meeting unlikely.”

Bob Singh, founder at Chess Mortgages, added: “The long-term expectation is that the falls will be gradual and hence enhances the likelihood of BoE holding rates at the next meeting.”

Yet, there were those who felt that this morning’s news may prompt the BoE to push rates up again in an attempt to keep inflation under control.

Amanda Aumonier, director of mortgage operations at, continued: “This shock uptick in inflation could, in theory, prompt the BoE to raise interest rates in an effort to regain control. This possibility will raise concerns for anxious homeowners facing the unenviable challenge of securing a new mortgage deal this year.”

Luke Thompson, director at PAB Wealth Management, noted that the inflation figure, coupled with geopolitical tensions in the Middle East, could also move the BoE to shift the base rate upwards once more.

He said: “The BoE knows it can’t reduce rates unless they hit the two per cent inflation target and with the issues in the Gulf around shipping, this could have the potential to provide a nasty sting in the tail on those inflation numbers and mean the base rate needs to stay higher for longer.”

Wage growth data dampening prospects of base rate cuts

Wage growth data dampening prospects of base rate cuts

The latest data from the Office for National Statistics (ONS) found that annual wage growth in regular earnings (which excludes bonuses) was 6.6 per cent in September to November 2023, while growth in total earnings (which includes bonuses) was 6.5 per cent over the same period.

Accounting for inflation, this translates as real term pay growth of 1.4 per cent and 1.3 per cent respectively.

This has dampened the prospects of an imminent reduction in bank base rate, according to Derrick Dunne, CEO of You Asset Management.

He suggested that, with wage growth “well above the current rate of inflation” ‒ the consumer price index measurement was 3.9 per cent in the 12 months to November ‒ and more than 900,000 unfilled job vacancies, there is little prospect of a rate cut.

The Bank of England will be unlikely to pull the trigger on interest rate cuts until there are signs that wage growth has cooled even further,” he said.

This was echoed by the EY ITEM Club, which argued that “nervousness” about a new year pay round and a big rise in the national living wage in the spring means the Bank of England may hold off on rate cuts until May.

Martin Beck, chief economic adviser to the ITEM Club, said this would give policymakers the time to “assess the implications of new year pay deals, as well as the direct and possible indirect effects of the near 10 per cent increase in the national living wage in April”.

Pushing the economically inactive into work

While there are more than 900,000 vacancies, the total figure dropped for the 18th consecutive period. The ONS reported this was the longest consecutive run of quarterly falls ever recorded, though pointed out that vacancies remain above pre-pandemic levels. 

In addition, the employment rate increased marginally over the quarter to 75.8 per cent, while the unemployment rate was largely unchanged at 4.2 per cent.

Nichola Hyett, investment manager at Wealth Club, commented: “We suspect the cost of living crisis is playing a part, pushing those who previously fell into the ‘economically inactive’ bracket back into work.”