The increase is a significant one, according to Richard Pike, sales and marketing director at mortgage servicing provider Phoebus Software. “It’s the first CPI data to be published since the Iran conflict began, and more importantly the numbers will have a direct input into the Bank of England’s base rate thinking ahead of the MPC [Monetary Policy Committee] meeting next week,” he said.
But that’s not to say that it’s all doom and gloom for the economic outlook. Price pressures caused by rising oil and fuel costs have been offset in part by the energy price cap, Pike pointed out, while easing wage pressures have put downward pressure on underlying inflation.
The key question for Pike: whether the spike marks “a temporary energy bump or the start of a more stubborn inflationary phase.”
Rates expected to hold steady amid volatility
Last week saw some welcome news for homebuyers as a flurry of lenders cut mortgage rates amid positive signs on a resolution to the Iran war – but if investors conclude that inflation will remain sticky, they’re likely to price in a higher-for-longer path for the BoE’s rate, potentially limiting how far mortgage rates can fall and keeping product repricing volatile.
That means Pike doesn’t see rapid rate relief for borrowers ahead. “In the short term, I expect mortgage rates will remain at current levels and volatile,” he said. If rates do stay elevated, it could accelerate the need for more flexible mortgage servicing “in areas such as payment strategies and product transfers where the right servicing software will automate as much as possible to support both users and borrowers.”