For the first time since 2021, the UK inflation rate has fallen below the target rate set by the Bank of England of 2.0%. The current inflation data which was released for the twelve months to September was reported at 1.7%. This is a sharp decline from the previous inflation report of the twelve months to September of 2.2%, slightly above target. The drop below target rate was expected to occur, but not until next year. The earlier than expected and sharp decline has given life to a strong expectation for the Bank’s Monetary Policy Committee (MPC) to cut the standard base interest rate during their next meeting in November.

The forecast for a cut to the base rate is due to the fact that the higher rates set by the MPC were intended to bring down inflation, and now it is below target. The rate hikes began in December 2021, and at each consecutive MPC meeting through August 2023 a majority vote brought about a higher base rate. By September 2023, when the MPC voted to keep the rate steady it was at 5.25% having grown from the historically low 0.1% of December 2021.

The base rate remained steady until August of this year, when the sixteen-year high was cut by 0.25%, which took the rate to 5.0%. It was the first cut to the base rate since March 2020, and at that time the pandemic was impacting the economy and the MPC took the rate to almost zero at 0.1% where it remained until the MPC began increasing it.

Inflation rose to double digits and remained stubborn throughout the fight by the MPC to gain control and tame it to the 2.0% target. 

The first rate cut since March 2020, the one previously discussed that occurred this year in August, was so highly anticipated for 2024 that it was first forecasted for early spring. Instead, it took until August. This revealed the MPC was not going to ease the higher cost of borrowing by cutting the rate too soon and risk inflation setting in hard above target.

This brings up the two possible scenarios for the November MPC meeting. The highly anticipated cut to the base rate of likely another 0.25% reduction or holding the rate steady to obtain another inflation report in November and the one in December before the committee gathers for the final MPC meeting of the year on 19 December.

The good news for borrowers is that lenders have not considered it necessary to wait upon the outcome of another rate cut. They know it is more likely than not to occur in the near future, and to be competitive have lowered their rate offers to reflect a second MPC cut before it has occurred. 

There are mortgages available below 4.0% and remortgages nearing the same level. Not only are rates lower but an easing in lending has evolved with attractive deals for those with higher LTV or loan-to-value ratios. Longer terms are also being offered with lower rate deals.

For borrowers intent on locking in a lower than expected fixed rate remortgage, they need not wait. Simply spending a few moments online shopping for a remortgage will reveal the opportunities available.

Meanwhile, home buyers are taking advantage of lower cost borrowing, and the housing market is experiencing strong demand.

Lower borrowing costs along with lower inflation is indeed good news for borrowers. Also, there is likely no need to worry about the current low rate offers disappearing quickly should the MPC hold the rate steady in November. So long as the inflation rate data released in November and December are favorable, and they are expected to be, then lenders are likely to allow their offers to sit on the table available for all those looking to take advantage of the better deals here before a second MPC rate cut.

One other possible scenario is for inflation to climb more than expected, this could signal waiting longer for the next rate cut, but it should give plenty of time for borrowers to take advantage of the then rates before lenders become disenchanted with the optimism of a better economic outlook and pull their best rates for the time being.