Rising oil prices due to conflict in the Middle East and the Budget will be key factors that affect the direction of interest rates until the end of the year, says Savills.
Heighten fighting in the Middle East between Israel and Arab militias has pushed up oil prices over the last month, with Brent Crude jumping 12.7% to $80.93 in afternoon trading.
“The situation in the Middle East is a key risk factor and the price of crude oil has already increased, which could in turn push up inflation and limit rate cuts,” says the estate agent’s director of residential research Chris Buckle.
Traders are betting that the Bank of England will cut rates by a total of 0.5% in two of its final three rate-setting meetings this year to bring base rate down to 4.50%.
This comes despite the Bank’s Monetary Policy Committee voting to hold the rate at 5%, following a 0.25% cut in August. Its first reduction in four years.
Inflation came in at 2.2% in August, unchanged from July, just above the BoE’s 2% target.
Bank governor Andrew Bailey cheered markets last week when he said that there was room for the central bank to become “more aggressive”.
However, a day later the Bank’s chief economist Huw Pill warned against cutting the price of borrowing “too far or too fast”.
Buckle adds: “[Housing] market conditions over the next few months will continue to be reliant on mortgage interest rates.
“Bank of England governor, Andrew Bailey, has hinted that interest rates could fall more quickly than economists are expecting, which would be a boost for the housing market.
“But this relies on inflation remaining close to the 2% target.”
Buckle also points to the Budget as another important factor set to impact the property market.
Chancellor Rachael Reeves delivers this Labour government Budget on 30 October, where she will have to plug a £22bn black hole in the public finances left by the previous Conservative administration.
Reeves has said it will not increase income tax, VAT or National Insurance in its first Budget for 14 years.
But has not ruled out rises to capital gains, inheritance tax and other levies surrounding pensions.
Buckle adds: “Anticipated changes to capital taxation have already caused some buy-to-let landlords and second homeowners to sell, reducing the supply of homes to rent.
“And the prime markets are wary of any change to the treatment of ‘non-doms’. Support for new homes, particularly social housing, is also expected.”
The Halifax reported yesterday that annual house price growth lifted 4.7% to £293,399 — just shy of the £293,507 record set in June 2022, three months before the then prime minister Liz Truss’s mini-Budget.
