Sir Howard Davies, who chairs NatWest, has warned that we we could see a “rather slow reduction in interest rates” this year because “wage expectations are quite high”.
Speaking on radio 4’s Today programme, he explained why lenders have already started to cut mortgage rates in a fierce price war. As financial markets are now expecting a series of rate cuts from the Bank of England this year,
therefore you can, as a bank, fix your interest rate at a slightly lower level than you could even a couple of months ago. And it’s that fixing of the rates in the market that determines what we can offer to customers. So the market expectations of rates are falling, therefore, we can pass that on to people who want a new mortgage.
Even at the last meeting in December, three of the nine members of the [rate-setting] committee still voted for a further increase in rates. So they’re quite a long way away at the moment from a majority in favour of a reduction in rates. And there is a risk of that, having been burned once by reacting too slowly. They are now going to be rather cautious in coming down.
It’s likely that we will see a rather slow reduction in rates during the year. They will of course be influenced by what is going on in retail prices, not rising anything like as rapidly as they were, but still wage expectations are quite high and that if you read the recent speeches from the Bank of England, thats what’s worrying them the most. Continue reading...
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