UK inflation slowed more sharply than expected to 4.6% in October thanks to a drop in energy prices. The year-on-year rise in the consumer prices index was lower than the 4.8 per cent predicted by economists at Reuters, and below the 6.7% recorded for September. The Office for National Statistics figures mean inflation is at its lowest level since 2021. It also means that this is the steepest single month decline in the consumer prices index (CPI) since 1992.
So, what does all of this mean for interest rates? Well, it seems financial markets are fully expecting them to be frozen again at next month’s MPC meeting and are now pricing in an interest rate cut early in 2024. The Prime minister’s goal of halving inflation by the end of the year has been met and analysts now feel we are past the peak of base rate rises. In a note to analysts, financial management giants Morgan Stanley said it expects the BoE to cut interest rates as soon as the spring of 2024 and notes that the base rate could fall to 4.25 per cent by the end of next year.
As a property investment specialist, we are of course looking at this through the lens of investment. What will this mean for the market and the financials of property investment? Clearly a drop in rates would be very welcome and we expect mortgage lenders to continue to fight tooth and nail in 2024 for market share. It seems highly likely 2024 will see mortgage deals priced at under 4%. When coupled by the dramatic rises in rental prices we expect the underlying fundamentals of property investment to look extremely attractive.
Property industry giants Savills, with an eye to this rapidly changing landscape, have revised up their property price forecasts in their latest residential property market forecasts. They now have much of the North of England predicted to grow at around 20% over the next 5 years. This is in contrast to London and the South where more modest price rises are predicted.
