The Governor of the Bank of England, Andrew Bailey, has indicated that interest rates may have peaked, after they hit 4% on 2 February this year. This was the 10th successive rise since December 2021, in an effort to combat spiralling inflation. The Financial Times reports that there may not be any need for further rises.
Mr. Bailey commented: “My reading of the evidence since our February meeting — the data we have had for economic activity, the labour market and inflation — is that the economy is evolving much as we expected it to. Inflation has been slightly weaker, and activity and wages slightly stronger, though I would emphasise ‘slightly’ in both cases.”
He added: “At this stage, I would caution against suggesting either that we are done with increasing bank rate, or that we will inevitably need to do more.”
“Some further increase in bank rate may turn out to be appropriate, but nothing is decided. The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.”
Despite the generally more positive economic outlook, consumer credit doubled during January to £1.6bn, as people borrowed more during the cost of living crisis to help cover essential living costs. House prices also fell by 0.5% in February, according to Nationwide’s latest figures reported by The Guardian.
Robert Gardner, Nationwide’s chief economist, said: “While financial market conditions normalised some time ago, housing market activity has remained subdued. This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time.”
The less frenetic pace of the housing market may be good news for some first time buyers who have at least a 5% deposit saved, however. Interest rates on new mortgage deals have been falling steadily since hitting a peak last September, with many products now below 4%.
Mr Bailey was careful to point out that prices for essentials such as food and fuel had yet to fall, and the pressures on household budgets would remain in place for the time being. He also added that if inflation failed to fall, possible future rises in interest rates were still on the cards.
He commented: “We need to calibrate monetary policy with great care to return inflation to target sustainably. If we do too little with interest rates now, we will only have to do more later on. The experience of the 1970s taught us that important lesson.”
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