Rates set to drop
Banks and building societies look set to cut the costs of UK fixed-rate mortgages in the short- to medium-term after the International Monetary Fund (IMF) predicted that ultra-low interest rates will soon return with inflation due to fall sharply in the coming months.
A number of homeowners have been hit hard by a steep increase in mortgage costs in recent months. But the United Nations financial agency says that the combination of an ageing population and low productivity is set to rein in inflation and take interest rates back to pre-Covid levels.
The IMF said that skyrocketing inflation, currently at a four-decade high in Britain, is only a short-term issue in the overall trend for low interest rates, rather than a permanent change to the global financial landscape.
“Recent increases in real interest rates are likely to be temporary. When inflation is brought back under control, advanced economies’ central banks are likely to ease monetary policy and bring real interest rates back towards pre-pandemic levels,” a report by IMF economists said.
The so-called “natural” rates of interest, an anchor for monetary policy that neither stimulates nor discourages economic activity, “will remain low in advanced economies or decline further in emerging markets,” the report concluded.