Valuable information for borrowers will come next week. On 20 March, the inflation report will be released, and the next day will be the Bank of England’s Monetary Policy Committee (MPC) meeting in which they will be responding to the newly released inflation rate. Inflation had dropped to 3.9% at the end of last year only to rise to 4.0% where it has sat stubbornly for a few months. Of course, the expectation is for a shift in the inflation level toward the target set by the Bank of 2.0%, but if it remains steady or rises, the MPC might take an assertive stance.

The MPC, of course, takes into account other information about the economy in their consideration of setting the standard base interest rate. The expectation at the conclusion of the March meeting is for the rate to be held steady no matter where the inflation rate sits. No one is forecasting an increase, and therefore it would appear the current base rate of 5.25% is sufficient to keep inflation at least steady and will eventually move it downward.

However, spending has not yet slowed as anticipated. For instance, the housing market recently experienced a boost at the end of January and into February with the unanticipated competitive lending market that emerged when lenders began to cut their rates despite the base rate holding steady in the first MPC meeting of the year in February. Some lender rates were below the base rate, and while prices remain elevated in the housing market, the attractive lending rates offered brought home buyers back into the market.

If the scenario for inflation is unexpected and rises, the MPC could become aggressive to control the rate and consider a rate hike. Even if they believe it would be for a brief time period, the impact of a rate hike could be enough to cut spending and begin to have a stronger downward push on inflation. Then the rate could be cut when inflation starts a quick trek toward target.

An increase in the base rate may or may not translate to mortgage and remortgage lending. The base rate held steady when lenders began to cut theirs only weeks ago. Also, ahead of the MPC meeting next week lenders have been moving into higher rate offers already. Even if the MPC increases the base rate, lenders will have already increased theirs initially.

This draws attention to the reason experts encourage homeowners to avoid being moved to their lender’s standard variable rate (SVR) for lenders can and do change their rates outside of the decision of the MPC. With a SVR already higher than what is available with a remortgage, allowing a transition to a SVR could cause significant financial strain as the homeowner then rushes to remortgage to escape paying more than necessary.

There is also the scenario that the inflation rate could decline and a significant amount. Should it decline below the 3.9% low of last year, the MPC might consider a cut to the rate to offer relief to borrowers. It is more likely they would allow the rate to remain steady and allow it to continue to move inflation toward target. This could bring optimism that the MPC then would soon cut the current base rate in the coming months.

Borrowers, especially homeowners coming to the end of their mortgage term, could be tempted to avoid a remortgage in anticipation of getting a new deal later in the year when the MPC decides to make base rate cuts. However, it should be noted there is not likely to be a quick return to the base rate levels seen only two years ago. 

The strategy to take on a SVR and push aside the benefits of a remortgage now in hopes of lower rates in the months to come is taking on a great risk, paying more when savings could be had, and only to face the lower rates offered in the near future are not mind blowing cheap as had been the norm of 2021 and 2022.

The inflation rate will either be reported the same at 4.0%, lower, or higher. Any one of those situations could have the MPC leaving the current base rate steady. It is the forecast of the majority of experts that the base rate will be allowed to remain as is during the meeting of the MPC on 21 March. The majority vote will likely want the rate to be steady, but there could be others voting to rid inflation quicker with a rate hike, or those calling for borrower relief and a small rate cut.

Not matter what happens next week, borrowers, especially homeowners in need of or soon to need a remortgage at the end of their mortgage term should begin to shop for a new deal sooner rather than later because lenders are not as optimistic as borrowers would hope for and lending offers are already climbing without a word from the MPC.