Painful interest rate rises could soon be ending as inflation heads for a ‘quite marked’ decline, the governor of the Bank of England said.
Andrew Bailey told MPs that the Bank was reaching the ‘top of the cycle’ on rates — which have increased 14 times since December 2021.
He told the Treasury select committee: ‘There was a period where it was clear that rates needed to rise going forwards and the question for us was how much and over what time frame.
‘We are not in that phase anymore. I think the judgment now is much finer. I think we are much nearer now to the top of the cycle.’
Are we nearly there yet? Bank of England boss Andrew Bailey says rates may be near the peak
He added: ‘I’m not saying we are at the top of the cycle because we’ve got a meeting [of the rate-setting Monetary Policy Committee] to come.
‘But I think we are much nearer to it, on interest rates, on the basis of current evidence.’
Mr Bailey said evidence suggested the fall in inflation would continue and will be ‘further quite marked by the end of this year’.
But he insisted his remarks should not be taken as giving clues about the Bank’s next rates decision later this month – when markets expect rates will rise again, to 5.5 per cent.
Inflation remains at about 6.8 per cent and financial markets predict that interest rates will peak at 5.75 per cent later this year., these expectations have shifted back slightly after Mr Bailey’s comments.
However, analysts warn it could be well into next year before they start to fall and the Bank’s chief economist Huw Pill said recently that rates may have to stay higher for longer, rather than reach a sharp peak and fall back.
Britain’s biggest mortgage lender revealed the toll that higher interest rates are taking on the housing market this morning, with Halifax’s latest index showing house prices down 4.6 per cent over the past year.
The typical homeowner has seen £14,000 knocked off the value of their property and the average home now costs £279,569, according to Halifax. But such has been the extent of the pandemic property boom that this takes values only back to the level seen at the start of 2022.
