Lower inflation could mean rates have peaked - commercial mortgages

18 September 2007

Consumer price inflation dropped from 1.9 per cent to 1.8 per cent in August, the Office of National Statistics has revealed, with analysts calling the news "a pleasant surprise".

That is likely to be the case for firms with commercial mortgages looking to keep repayments down, as many market observers now believe that the news will ensure that interest rates fall before they rise again.

With the credit crunch also making itself felt in the UK via the run on Northern Rock seen this week, the Bank may even decide to cut rates within the next few months, it has been suggested.

"Unless inter-bank rates fall markedly, a quarter point cut in Bank Rate would still leave monetary conditions tighter than they were before the current crisis started," noted the British Chambers of Commerce''s economic adviser David Kern.

However, Capital Economics, while admitting that the news was surprising, pointed to the fact that the core rate of inflation actually rose to 1.8 per cent in August.