Interest rates are thought to be close to reaching their peak after Bank of England Governor Andrew Bailey told MPs on the Treasury Committee on Wednesday that they may not need to increase much further

Bailey hinted that the Bank of England  may not lift interest rates further and stressed inflation was on course for a ‘marked’ decline.

FINANCIAL MARKETS

The Times reports that before Bailey’s comments, financial markets expected the Bank’s Monetary Policy Committee to send rates up two more times this year to 5.75%. Rate cuts were not priced in until the end of next year.

The pound weakened following his comments, although financial markets continue to expect the Bank to increase rates by 0.25% to 5.5% on September 21.

Craig Fish, Director at Lodestone Mortgages & Protection, told Newspage: “Andrew Bailey’s comments were interesting and unexpected. There is confidence that this will settle the nerves of the lenders and we will continue to see small tweaks to interest rates over the next couple of weeks leading up to the 21 September when the Monetary Policy Committee makes its decision.

“At this stage, it looks like Andrew Bailey’s comments may just have given us Christmas back.

“Let’s hope that the Monetary Policy Committee doesn’t take the place of the Grinch and steal it away from us.”

Elsewhere, Halifax reported house prices have fallen for the fifth consecutive month. Prices fell by 1.9% between July and August, meaning there has been an annual drop of 4.6%, the largest fall since 2009.

ECONOMIC VOLATILITY

Tom Bill, Head of UK Residential Research at Knight Frank, says: “House prices have fallen as mortgage rates have risen but the political and economic volatility of the last 12 months has taken its toll on sentiment.

“Buyers and sellers knew interest rates would rise after being close to zero for 14 years, they just didn’t expect it to feel like being strapped into a roller-coaster.”

Sentiment will only improve when there is more certainty that the current cycle of rate hikes is over.”

While Knight Frank doesn’t anticipate a cliff-edge moment for prices it says a single-digit decline this year is likely to be repeated next year.

Bill adds: “A strong jobs market, lender flexibility and the prevalence of fixed-rate deals in recent years will all act as shock-absorbers but sentiment will only improve when there is more certainty that the current cycle of rate hikes is over.

“Even then, the adjustment to higher borrowing costs and the looming general election mean we don’t expect a housing market firing on all cylinders.”