Interest rates ‘storm coming’ as Halifax rate higher than Big Six average

‘The storm is coming’: Stubborn core inflation spells bad news for interest rates (Image: Getty) Homeowners have been warned that a storm is about to worsen mortgage rates despite today’s drop in overall inflation.  Consumer Price Index (CPI) inflation slowed to its lowest for 15 months in July at 6.8 percent, however, core inflation remains stubborn at 6.9 percent – unchanged from June. Core inflation reflects the change in prices of goods and services, except for those from the food and energy sectors, and while resilient spending in these areas persists, the hope of a lower Bank of England Base Rate is dwindling. The Bank of England increased the Base Rate to 5.25 percent in July in a continuing effort to help stem the UK’s spiralling inflation rate and encourage people to spend less. While this has had a largely positive impact on savings, mortgage rates have also rocketed adding increasing pressure to Briton’s finances as they still contend with general price rises. Standard Variable Rates (SVR) are currently averaging at 7.74 percent across the big six lenders, which includes Nationwide, Santander, HSBC, Halifax, Barclays Bank, NatWest, and Lloyds Bank, according to  Uswitch  mortgages. But Halifax’s SVR has hit a staggering 8.74 percent, which according to mortgage comparison site Mortgage Rates, is ‘slightly higher’ than the industry average and 3.49 percent above the Base Rate. The pace of inflation dropped to 6.8 percent in July, down from 7.9 percent. (Image: EXPRESS) It said that, while Halifax is offering ‘some of the best’ deals in the fixed rate market space, the SVR is ‘probably the most important number to look at these days’. Although the SVR is not directly tied to the Base Rate, it’s common for high street banks to raise their SVR in line with it. With a Government-set target to reduce the CPI rate to two percent by the end of the year, analysts are warning a ‘storm’ could be coming. Lewis Shaw, owner and mortgage expert at Shaw Financial Services, said: “These are not the figures we were hoping for. It’s positive that headline inflation has fallen but core inflation has stayed the same and will spook bond markets, the Bank of England and mortgage lenders with just how sticky it is.’ ‘Expect more Base Rate rises starting with 50 basis points in September and more hikes until this inflationary tiger has been captured and put back in its cage.’ He added that this could mark the end of mortgage rate cuts ‘for now’, before warning: ‘Anyone needing to remortgage should get on and do it now. Buckle up because the storm is coming.” Jason Hollands, managing director at investing platform Bestinvest said that the resilience of the UK economy and the latest wage growth data released yesterday, which saw nominal salaries rise by a record 7.8 percent, is a ‘double-edged’ sword. Mr Hollands explained: “While many will applaud evidence – given today’s inflation reading – that earnings are starting to grow in real terms, Bank of England rate-setters will be fretting that core inflation is so stubborn and higher earnings could start to revive inflationary headwinds. He added that this could ‘signal the need for further interest rate hikes – beyond those already expected.” Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said another interest rate rise is on the way, though he predicts the Bank of England’s nine monetary policymakers will be split on the decision. Mr Thiru said: ‘Although these figures provide reassurance that the inflation tide has turned, this latest drop owes more to lower energy bills, following the reduction in Ofgem’s energy price cap, than to a broader easing of price pressures.’ ‘Though another interest rate rise in September looks inescapable, this drop in inflation may drive a more notable voting split in the Monetary Policy Committee next month, particularly as worries over the UK economy grow.’ The next Monetary Policy Committee meeting will take place on September 21, 2023.