Reason for optimism despite inflation rise
Posted on January 25th 2010
Last week’s inflation figures came as a bit of a shock. The jump in December was the biggest rise on record but what does it mean for the mortgage market? My view is that it is too early to tell, if Mervyn King is right and this is only a temporary blip then it will have no noticeable impact but if it is the start of a trend the outlook could be different.
If it is the start of higher inflation then clearly the BofE will come under pressure to stop its QE program and also to consider putting up BBR, and that will obviously have a negative effect on the mortgage market and the wider economy. The political pressure to keep rates low will no doubt stop any imminent BBR rises but Libor and SWAP rates may start to increase thus increasing the cost of borrowing for everyone; that being said Libor and Swaps hardly moved after the announcement so it looks like the markets took things in their stride. On the positive side I was equally as surprised by the unemployment numbers, I definitely thought that the numbers were going to keep going up for at least another six months, if not longer.
If we get confirmation that we came out of recession in Q409 we will certainly have reason to be optimistic about 2010 and with the apparent rush of new lenders to the market maybe mortgage intermediaries will have something to cheer about as well.
