Investors are being urged to brace for a possible delay in the Bank of England’s next base rate cut, following a rise in headline inflation from 2.0% to 2.2% in July.
Although core inflation fell slightly to 3.3% from 3.5%, and services inflation dropped more than expected, the overall inflationary pressure may complicate plans for further rate reductions.
Possible delay in rate cuts
Alice Heine, finance expert at Best Invest, warns that the stronger-than-expected inflation figure could delay the next base rate cut until later in the year. “The rise in inflation puts the figure above the Bank of England’s 2% target, potentially delaying a follow-up rate cut that was widely expected in September,” Heine explains. She also notes that rising energy costs toward the end of 2024 could further complicate the central bank’s efforts to ease interest rates, prolonging financial challenges for those with mortgages or debt repayments.
Inflationary pressures remain
Jatin Ondhia, CEO of property investment platform Shojin, points out that while inflation is under control compared to its previous highs, several factors could still drive it back up. “Persistent inflationary pressures are likely to be a feature in the coming months, and investors need to consider how well-positioned their portfolios are to generate returns in this environment,” says Ondhia. He emphasizes the importance of diversification and agility to navigate these uncertain conditions.
Resilience of real estate and alternative investments
Ondhia suggests that resilient markets, such as real estate, will continue to attract investor demand. He also advises investors to explore alternative investments as a means to diversify portfolios and mitigate risks associated with fluctuating interest rates and inflationary pressures.
Mortgage market perspectives
Mortgage experts echo these concerns. Ranald Mitchell, director at Charwin Mortgages, believes that while a September rate cut is now less likely, competition among lenders could help maintain demand in the property market. “Lender competition with mortgage rates should support borrower demand and keep the property market resilient,” Mitchell comments.
Ben Perks, managing director at Orchard Financial Advisers, adds that a base rate cut in September was always unlikely but confirms that the inflation rise to 2.2% is not cause for panic. He expects mortgage rates to continue easing. “Core inflation could ride to the rescue,” says Perks.
Riz Malik, director at R3 Mortgages, also expects the next potential base rate cut to be delayed until November. “While no one expected inflation to stay at 2%, the current data doesn’t point to a rate cut in September, but November could still present an opportunity,” Malik suggests.
Investors are advised to prepare for potential delays in interest rate cuts and to focus on diversification to manage risk during this uncertain period. Resilient sectors like real estate and alternative investments offer opportunities to protect and grow portfolios amid ongoing inflationary pressures.
