Financial Market Update
Colin Payne : 23 February 2011
Since the last update, the Monetary Policy Committee (MPC) has continued their ‘wait and see’ policy and kept rates at 0.50%. However, since then inflation has continued to increase, with the consumer price index increasing from 3.7% to 4%. The problems in North Africa and the Middle East have certainly not improved the situation, and with Libya being a major oil exporter to Europe the cost of a barrel of oil has continued to increase. The price of a barrel of crude oil is now almost $105, its highest level since before the financial crisis really took effect in 2008, and an increase of approx 40% in the last 12 months. Retail sales bounced back in January with a 1.9% increase, but that contrasted with a December when sales nose-dived 1.4% due to the poor weather. In order to see the full picture we need to wait for the February figures to be announced in mid-March. However, the talk is all about inflation, and given the fact it is likely to continue to increase in the short term I still believe an increase is inevitable in May.
Despite all this, SWAP rates are down slightly on where they were last week, but this is because the market has already priced in a bank rate increase. This has been reflected with lenders increasing their fixed rate prices, with Nationwide doing so twice in the last 5 days. The lender that has bucked the trend is Halifax who, in reducing rates, now has the market-leading two-year fix at 75% borrowing.
It is a close call whether a tracker or a fixed rate mortgage is the more beneficial. There is still almost 1% between the cheapest two-year tracker and the cheapest two-year fix, and I don’t envisage the bank rate increasing by that amount over the next 12 months. The client will potentially be better off for the first 12 months, and then if interest rates don’t rise too sharply could still save over the the two years as a whole. Trackers are not the only option, and it is important to remember that whilst 1% is a large difference in rates, if you want to be able to budget, a fixed rate has to be a consideration.
For advice on the best option given your circumstances and in these market conditions, contact us on 020 7722 6777.
Colin Payne, Chapelgate Associates Ltd
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