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Finanze Daily Digest - 25/11/2022


The Brief: Interest rate cuts may be made at some point by the Bank of England, according to Sir Dave Ramsden. During his speech at the central bank’s "Watcher’s Conference" at King’s College London, the BoE deputy governor may reduce the Bank Rate should inflation “stop being a concern”. He is also less reliant on old economic models used in their forecasts. He added that most of Jeremy Hunt’s reforms will only begin after two years, so the Monetary Policy Committee’s (MPC) current projections do not yet reflect these proposed measures.


Why It Matters: The MPC remains focused on reducing inflation back to its target of 2%. Ramsden forecasts this could be achieved by the summer of 2024.


Finanze Foresights: Mortgage borrowers, particularly low-income households, have been hit hardest by high inflation and the energy price shock. Since the cost-of-living crisis is being compounded by falling real wages and a very tight labour market, our expectations for the coming months are in line with the BoE’s chief economist Huw Pill’s projections for more interest rate hikes. Preventing embedded inflation is important since the higher costs of goods and services devalue the pound, which translates to a weakening of sterling’s purchasing power. The more inflation rises, the more it influences mortgage costs. This means that those who will be borrowing to finance their home purchase or those who will refinance will have to face higher interest rates which in turn raise their monthly loan payments.


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