Investors bet interest rates have peaked

Borrowers appear ready for some much-needed reprieve as investors bet rates have peaked after a series of painful rate hikes.

As storm clouds gather over the global economy, official figures yesterday showed the UK labor market slowing, while the private sector suffered a third month of decline.

Against this uncertain backdrop, financial market bets suggest there is a 90% chance that rates will remain unchanged when Bank of England officials meet next week.

The chances of further rate hikes next year have also diminished as investors bet they won’t rise above the current 5.25% level.

That would come as a relief to millions of borrowers who have seen mortgage costs rise – although many will pin their hopes on interest rate cuts to ease the strain on family finances.

Daniel Mahoney, a British economist at banking group Handelsbanken, said: ‘Markets now think it is more likely than not that 5.25% is indeed the highest base rate for this cycle, and this is a view we agree with. ‘

The Bank increased interest rates fourteen times in a row between December 2021 and August 2023, from 0.1% to 5.25%.

That has raised the cost of mortgages and other loans for millions of households and businesses — and slowed the economy at the same time. A report from the Office for National Statistics yesterday showed the unemployment rate rose to 4.2% in the three months to August, up from 4% in the previous three months.

Meanwhile, companies reported a decline in activity this month and said cost pressures have eased further.

S&P Global’s Purchasing Managers’ Index (PMI) for private sector activity stood at 48.6 for the month.