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Beat The Budget – Book Your New Mortgage Rate Early

Autumn Labour Budget

Budget Anticipation

The upcoming Autumn Budget is becoming a critical factor influencing financial markets. This budget is particularly significant as it arrives at a time when the UK is grappling with inflation, slowing economic growth, and the need for fiscal responsibility after years of pandemic-related borrowing. The budget’s impact on inflation, government debt levels, and economic growth prospects is expected to drive future interest rate expectations and, by extension, swap rates.

The UK Government is walking a fine line between boosting economic growth through fiscal stimulus and controlling inflation. If the government signals a move towards increased public spending, whether through infrastructure projects, welfare programs, or tax cuts, this can fuel inflation expectations. More government spending means injecting more money into the economy, which can stimulate demand but also lead to upward pressure on prices.

Bank Of England Response

When markets expect inflation to rise, they anticipate that central banks, like the Bank of England, will respond by raising interest rates to keep inflation in check. Higher future interest rates drive swap rates higher as lenders demand more compensation for locking in long-term fixed rates today, anticipating a tighter monetary policy environment.

However, the budget uncertainty makes it difficult for markets to predict how the Bank of England will react. Will it raise interest rates quickly to keep inflation in check, or will it take a more gradual approach? This lack of clarity feeds into swap rates as markets hedge against multiple possible outcomes.

Royal Exchange Bank of England London Picture

Swap Rates Rise As Markets React

The ongoing conflict in the Middle East, a region critical to global oil production, has fueled concerns about supply disruptions. As a result, oil prices have surged, causing inflationary pressures worldwide. Central banks often respond to such inflation by tightening monetary policy, which includes raising interest rates to curb rising prices. This has led to a rise in swap rates, which are closely tied to expectations around interest rate movements.

4th October Swaps

4th October Swaps

19th September Swaps

19th September Swaps

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