Source: Financial Times —
Interest rates on five-year fixed mortgages are set to drop below 4 per cent after the Bank of England suggested inflation may come under control sooner than expected, according to brokers.
The central bank on Thursday raised its benchmark interest rate by half a percentage point to 4 per cent, in response to high inflation. After 10 upward moves since December 2021, the BoE suggested rates may have peaked.
Lenders, who set prices for their fixed mortgage deals using financial market expectations about future base rate movements, had already priced in the latest tightening of monetary policy.
But after the BoE’s meeting on Thursday, market expectations of future rate increases dropped further. Traders anticipate one quarter-point rate rise in March, and that the BoE will then begin loosening monetary policy by the end of the year.
The change in expectations in the overnight index swap market, which follows BoE decisions, suggests the average central bank rate over the coming two years will be 3.75 per cent, down from 4.34 per cent at the start of January. The average BoE rate over the coming five years is now 3.21 per cent, down from 3.93 per cent in January.
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