It has been revealed that the UK Consumer Price Index (CPI) increased from 1.7% to 2.3% between September and October 2024.
Coming from the Office of National Statistics (ONS) on the 20th of November, the announcement surprised many industry experts who had hoped for a further drop in base rates before the end of the year.
With the advent of this news, property owners and buyers will be asking what is driving the UK economy and what could happen to mortgage rates over the coming months.
The rise in the UK CPI has been largely attributed to the rising cost of energy, with the typical household energy bill increasing by around £149 in September.
Although energy prices are rising more slowly than in recent years, Ofgem has recently announced a further increase in the energy price cap. Between 1 January 2025 and 31 March 2025, the energy price cap will be increased to £1,738 per year for typical households paying for their energy by Direct Debit.
This is an increase of 1.2% on the existing £1,717 price cap running from 1 October to 31 December 2024.
However, rising energy costs have been dominating headlines for several months, which leads to the question – if energy is driving inflation, why were so many commenters surprised by the latest rise?
In addition to rising energy costs, the UK is currently facing several other domestic challenges that are further driving inflation in services.
In a speech given at Leeds Business School (published on 20 November 2024)*, Deputy Governor, Markets and Banking for the Bank of England (BoE), Sir Dave Ramsden noted that the underlying unemployment rate has been broadly flat over the last few quarters.
This could suggest that the labour market is tighter than expected, meaning that employers are competing for workers by raising wages – adding further inflationary pressures to the economy.
Rachel Reeves’s Autumn Budget has also introduced uncertainty to the outlook of the labour market and the wider economy according to Sir Dave, with increased National Insurance Contributions (NICs) and the National Living Wage potentially impacting employment costs for firms.
“It is not yet clear how the increase in employer NICs and the National Living Wage will impact the overall cost of employment for firms, wages and ultimately prices,” he said. “It is not clear the extent to which the tax increase will be transmitted into an increase in prices, reduction in wages, increase in unemployment or otherwise absorbed into profit margins or productivity growth.”
Despite the BoE deciding to lower its Base Rate to 4.75% earlier this month, UK mortgage rates have increased slightly in recent weeks as lenders respond to uncertainty around the Autumn budget and its potential impact on inflation.
The latest news that inflation has again risen above the government’s 2% target will likely crush any hopes of a further decrease of the Base Rate in 2024.
According to Rightmove**, the average 2-year fixed mortgage rate is 5.08%. This is a 0.02% increase on the previous week, but a 0.51% decrease compared to the same period last year.
The average 5-year fixed average mortgage rate is 4.86%. This is a 0.01% increase from last week, but a decrease of 0.32% from last year.
The message for homeowners and property buyers is that despite the challenges faced by the UK economy, the housing market has shown great resilience in recent years and continues to do so.
Lenders are certainly reacting to uncertainty across the economy, but most seem to be employing a tentative approach rather than rushing to increase mortgage rates significantly, meaning that overall rates are lower than they were last year.
It seems unlikely that Base Rates will fall again in 2024, but while concluding his recent speech, Sir David suggests that the overall view of conditions moving forward is one of caution, rather than panic, stating that “my overall assessment is that the economy will continue to normalise, with the recent trend towards low and relatively stable inflation continuing.”
He went on to say “At our most recent meeting I voted with the majority on the Monetary Policy Committee (MPC) to reduce the Bank Rate to 4.75%, reflecting the process of disinflation. Based on the evolving evidence a gradual approach to removing policy restraint does seem appropriate in keeping inflation close to the 2% target.”
This may indicate that the MPC will vote to hold the Base Rate in December, but certainly, all eyes will be on market conditions over the coming weeks.
The housing market has shown high levels of resilience throughout 2024, with house prices experiencing an annual price rise of 2.9% for September 2024 – despite a 0.3% drop since August.
The property market for the North West has continued to perform well, with an annual growth in house prices. Unlike the UK average for house prices, the North West has enjoyed a 0.4% increase in house prices since September.
With millions of potential buyers set to approach the property market this Boxing Day, now is the time to speak to a professional mortgage broker if you are considering purchasing a new home in the New Year.
Likewise, if you have a mortgage deal that is due to end soon, speaking to a mortgage advisor can help secure the best deal on the new mortgage and keep your monthly repayments affordable.
Contact Edward Mellor Mortgages
As a trusted estate agency with over 40 years of industry experience, Edward Mellor offers fully integrated financial, planning, conveyancing, and surveying services under one roof.
** Rightmove – ‘What are the current UK mortgage rates?’ Accessed 22 Nov. 2024
This article does not constitute financial advice. You should always speak to a professional broker for advice on your mortgage. Your home may be at risk if you do not keep up with your mortgage payments.
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