The mortgage price war has begun as lenders slash rates

(Yui Mok/PA)
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The economy is flatlining, the labour market is weakening and 43 per cent of UK adults expect their household finances to deteriorate this year. Let's talk about why this might actually be good news.

Obviously, in isolation it would be better if the economy were booming, the jobs market bouncing and households thought they were going to get richer. But in that case, inflation wouldn't be falling and the Bank of England wouldn't therefore be in a position to even think about cutting interest rates. 

There is a growing consensus among City watchers that the Bank will begin cutting rates in May. But you don't have to wait until the spring to enjoy these fruits. Mortgage providers, desperate to lend, have already started trimming their rates to attract borrowers. Yesterday, HSBC became the latest lender to cut its mortgage prices, joined by NatWest, TSB and Metro Bank.

The difference is already pretty stark. On 31 July 2023, the average two-year fixed residential mortgage rate today was 6.81 per cent, according to financial information firm Moneyfacts. Today, it is 5.62 per cent. And that is likely to fall further still.

How far and how fast depends on the data, and there is a lot of it around this week. Governor Andrew Bailey will be looking at everything from employment and insolvencies to wage rises. But the most important figure is inflation and wouldn't you know it, December's figure is out tomorrow. If we see another big drop, that will be a pretty decent sign that the 2 per cent target is within reach. Some analysts even forecast an undershooting this year.

There are, as ever, clouds on the horizon. Much of the drop in inflation can be attributed to falling oil and gas prices. But a regional war in the Middle East could lead to yet another energy shock. Indeed only today, the Wall Street Journal reports that Shell has suspended shipping through the Red Sea due to continued attacks by Houthi militants. 

There is also the broader picture. Yes, falling interest rates are good because they give households greater disposable income and cut costs for businesses. But interest rates are falling *because* the economy is doing poorly and the jobs market is wobbling. Meanwhile, there are still around 1.5 million borrowers coming off their ultra-low fixed mortgages this year.

TL;DR: Things are both getting worse and getting better. This $3 trillion economy of ours contains multitudes.

In the comment pages, Michael Wolff says Donald Trump's obliteration of his rivals in Iowa means he has only one real challenger left. Matthew d'Ancona declares the War on Terror back, and the Houthis in Yemen have opened a new front. While Melanie McDonagh says no wonder Prince Harry and Meghan Markle upset Queen Elizabeth when they named their daughter Lilibet.

And finally, Highgate Cemetery is to charge £25,000 for burial spots close to the grave of Karl Marx. And they say communism isn't a stable economic system.

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