After suggestion by the Bank of England that base rate could remain on hold throughout 2016, the mortgage rates could fall further. There was around 3 basis point drop in two, three and 10 year swap rates followed by the Bank’s inflation report yesterday. It sounded warning about weakened global growth outlook.
For most members, the weakness of core inflation and growth of unit labour costs meant that “indicators of underlying inflationary pressures were not strong enough to justify an increase in Bank Rate”.
“Monetary policy must continue to balance two fundamental forces -– domestic strength and foreign weakness. The outlook for global growth has weakened since August. Many emerging-market economies have slowed markedly this year, and the committee has downgraded its assessment of their medium-term growth prospects” according to the press conference of Mark Carney, the Bank of England governor.
He continued, “In my view, the decision as to when to start such a process of adjustment (to interest rates) will likely come into sharper relief around the turn of this year.”
The comments by Carney were interpreted by economists as indicating that there will be no rise in rates till, at least the second quarter of next year.
senior technical manager Ray Boulger, John Charcol, believes that, with borrowers enjoying a minimum of six more months of ultra-low mortgage rates, the mortgage rates could fall even more as the result of the Bank’s observations.
“Every time it looks like interest rates might have to rise something else happens globally to derail that, such as the slowdown in China or the fall in the oil price. I think that mortgage rates will probably fall further and that cheap mortgage deals will continue for at least the next six months. “I don’t think that there is much scope for two-year fixed rates to get cheaper, but we could see five-year deals coming back to 1.99 per cent and ten-year deals returning at 2.99 per cent.”
Meanwhile, deputy Bank of England governor Dame Nemat (Minouche) Shafik said, “Just last month, we looked at this again and we said that actually we do have room to lower interest rates if we had to and we could do more quantitative easing if we had to and in fact the governor’s letter to the chancellor this month explains precisely that. “But the fact of the matter is: at the moment we don’t need any more ammo, because the economy is growing above trend. But what we have said is that we have it there if we need it.”