Lower Inflation Figures lead to a drop in Mortgage Rates: A Positive Economic Indicator

This week on Wednesday 19th July, the Office for National Statistics (ONS) reported a significant breakthrough in the battle against rising prices, as the country’s inflation rate dropped to the lowest level in 15 months, falling below 8%. 

This news has sparked hope among investors and economists of a positive shift in the economy, as lower inflation can lead to improved purchasing power and better overall economic stability.

portfolio buy to let mortgage -aerial view sheffield
Inflation vs interest rates – both beginning to see improved figures in July 2023.

The impact of this drop in inflation has quickly resulted in mortgages and Swap rates (the financial market rates for longer term funding). On Thursday and Friday  the 20th and 21st July 2023, several lenders reported a notable drop in mortgage rates. With inflation under control, experts are now predicting a change in the monetary policy set by the Bank of England. 

This change has resulted in forecasts for a decrease in peak interest rates, which, in turn, has led to lenders competing to offer lower mortgage rates to attract potential borrowers.

As inflation is a crucial factor that most central banks consider when determining interest rates, the decline in inflation rates gives the Bank of England more latitude to manoeuvre with its monetary policies. Lower interest rates not only make borrowing cheaper for consumers but also stimulate demand in the housing market, as mortgage affordability improves. This, in turn, boosts the housing sector and contributes to overall economic growth.

Whilst the drop in inflation is a positive sign for the UK economy, it is essential to monitor how the Bank of England Monetary Policy Committee  responds to this development in the coming months. If inflation remains under control, it could signal a more stable and prosperous economic future for the country. However, policymakers must strike a delicate balance to ensure that inflation stays in check without hindering economic growth and job creation.

To conclude, the recent decline in UK inflation figures reported by the ONS has paved the way for a drop in mortgage rates from various lenders. This linkage showcases the critical relationship between inflation and interest rates in the context of the broader economy. If this trend continues, it could benefit both potential homebuyers and the overall economic climate in the UK.

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