Stephen Perkins is at the helm of Yellow Brick Mortgages, serving as its managing director.

At last, there’s a glimmer of positive news. Fresh data released this morning reveals that inflation has slightly declined, slipping from 3.8% to 3.6% over the year leading up to October.

Though the change in figures might seem minor and fell short of market expectations, its significance should not be underestimated.

This isn’t just background noise—it’s a promising indication that the pressure on prices is starting to ease, offering relief to both consumers and businesses.

With inflation trends heading in a favorable direction, the pressing question is whether the Bank of England will opt to reduce the base rate from 4% to 3.75% at the upcoming Monetary Policy Committee meeting scheduled for December 18.

Stephen Perkins, managing director at Yellow Brick Mortgages, says an interest rate cut could provide a real boost to the property market

The previous interest rate decision earlier in November was notably close. Four members of the Monetary Policy Committee supported a 0.25 basis point cut, while five members, including Governor Andrew Bailey, chose to maintain the current rates.

There’s no doubt that inflation nudging down just that little but could tip the balance of power in favour of the doves on Threadneedle Street.

What we know for sure is that many businesses and consumers have been clamouring for a cut for some time.

The economy is struggling, insolvency rates are up compared to a year ago, unemployment hit 5 per cent earlier this month and higher interest rates are biting hard.

This is especially the case for those borrowers who are about to come off an ultra-low five-year fixed rate mortgage, having fixed during the pandemic when deals were cheap.

If rates are cut next month, it will also provide a real boost to the property market, which has been stagnant in recent months ahead of next week’s Budget.

Data published this morning showed the annual rate of house price growth has slowed again, but a cut just before Christmas could see some real momentum hit the property market in the New Year.

Crucially, the reasons behind the slowdown in inflation make sense for once. Energy prices rose far less sharply than this time last year thanks to Ofgem’s cap changes, hotel costs dropped and the overall CPI basket is cooling rather than heating up.

Yes, food prices crept back up after a drop in September, but that’s more a blip than a trend. Look at the full picture and it’s clear: inflation is losing steam.

Against this backdrop, the Bank should be preparing for further easing. Rates were hiked aggressively to tame double-digit inflation not so long ago, but now the Bank needs to be equally bold in the other direction.

If rates stay too high for too long, you don’t just squeeze inflation out of the system, you squeeze households, strangle business investment and choke off any chance of recovery.

And right now, the economy is in desperate need of stimulus. I have never seen such low sentiment in the business community. Confidence really is shot to bits and businesses in all sectors have battened down the hatches.

A rate cut now wouldn’t be reckless or risky, it would be the logical next step in a process the Bank has already begun. 

The Bank has already lowered rates this year because it knows the peak has passed. The only question left is timing – and the inflation data is increasingly shouting, ‘Get on with it’.

Financial markets can see the writing on the wall. Expectations of a December rate cut have grown steadily as inflation softens. Most market commentators are now betting that a rate cut will be delivered next month.

What could the Budget do to interest rates? 

There is, of course, one hurdle between us and the next interest rate decision: the Budget. I don’t think there has ever been so much apprehension around a Budget as there has been with the one being delivered next Wednesday.

It’s the wildcard no-one can fully price in. A spending-heavy, vote-chasing Budget could muddy the waters and make the Bank more cautious.

A tighter, more disciplined Budget, however, would give the Bank exactly the cover it needs to move sooner.

Also, it’s worth saying that inflation is still way above target. If we do get a rate cut, we’re unlikely to get another one until there is a more material easing in inflation.

But the bigger picture is hard to ignore. Inflation is softening across multiple components. Global pressures have cooled. Domestic pressures are easing. And the economic risks of keeping rates too high for too long are becoming more serious by the month.

So, is a rate cut now more likely after the latest inflation dip? Yes.

The direction of travel for monetary policy is no longer in doubt: the next move is down, not up, short of an extraordinary market reaction to the Budget.

The Bank of England will act when it has enough confidence, and with every data release like this, that confidence grows.