Boost for borrowers as inflation remains low

Mortgage borrowers were given a boost this week with the news that annual inflation remained below the Bank of England's two per cent target in September.

It will also be well received by people looking to get their first mortgage as the Bank is now coming under increasing pressure to cut interest rates.

"The September consumer price inflation data will make largely pleasant reading for the Bank of England, and will likely boost expectations that it will trim interest rates before the end of the year, and possibly as early as November," said Howard Archer, chief UK and European economist at Global Insight.

High inflation had forced the base rate if interest up five times between August 2006 and July 2007 but this is now the third consecutive month that Consumer Price Index inflation has been below the two per cent target.

However, Mr Archer said that he does not believe a cut will be announced until 2008.

"We suspect that the Bank will only act before the end of this year if it becomes clear that growth is taking a major hit from the credit crunch thereby diluting underlying inflationary pressures," he commented.

"We believe that interest rates are more likely to be trimmed twice in the first half of 2008, taking interest rates down from 5.75 per cent to 5.25 per cent by midyear," added Mr Archer.

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