Hope for homeowners as interest rates 'near peak', Bank of England governor tells MPs

6 September 2023, 23:42

Andrew Bailey said interest rates could be nearing their peak
Andrew Bailey said interest rates could be nearing their peak. Picture: Alamy

By Kit Heren

Interest rates are likely to be close to their peak, the governor of the Bank of England said on Wednesday, in a hint that homeowners and the housing market may soon suffer less uncertainty.

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Andrew Bailey also told MPs that he believes the slowdown in inflation will be "further quite marked by the end of this year" amid scrutiny over the economy.

Many economists expect the Bank to boost interest rates for a 15th consecutive time to 5.5% this month. Most also predict rates will peak at 5.75%.

The Bank has been raising interest rates in a bid to bring down the rampant inflation of the past year. Rising interest rates make life difficult for people trying to get a loan, such as a mortgage, because their repayments are likely to be higher.

This uncertainty has had a knock-on negative effect on the wider housing market in recent months.

Read more: Inflation falls sharply to 6.8% from 7.9%, new data shows: What it means for you

Read more: 'Time to see the job through': Jeremy Hunt promises pressure on families will 'ease' as he insists inflation is falling

Governor of the Bank of England Andrew Bailey
Governor of the Bank of England Andrew Bailey. Picture: Getty

The Bank of England Governor told MPs Parliament's Treasury Committee on Wednesday: "There was a period where it seemed to me to be clear that rates needed to rise going forwards, and the question for us was how much and over what time frame.

"But we're not I think in that place anymore and that's why we shifted our language to being much more evidence and data-driven.

"I think we are much nearer now to the top of the cycle. And I am not therefore saying that we are at the top of the cycle because we still have a meeting to come.

"But I think we are much nearer to it, on interest rates, based on the current evidence."

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Inflation has gradually been falling from a peak of 11.1% in October 2022. But the rate of price increases is still high, at 6.8% in the year to July.

Mr Bailey said he thought inflation would continue to come down.

He said: "Many of the indicators are moving as we would expect them to move and are signalling that the fall in inflation will continue.

"And I've said, I think will be further quite marked by the end of this year.

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"However, wage bargaining is one thing that has surprised us the other way in recent months.

"The question now is that, as headline inflation comes down, and I hope people will become more confident it will come down, will we see inflation expectations continue to come down and will that be reflected in wage bargaining?"

The deputy governor, Sir Jon Cunliffe, said the Bank was now getting "mixed signals" in terms of evidence, with continuing pay growth and services price inflation but also "some cooling in the labour market".

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