When the US and Iran announced a deal to end the war, oil prices plummeted to $83 a barrel, having sat above $90 a barrel since early March.
This is likely to reduce inflationary pressure here in the UK meaning decision makers at the Bank of England are less likely to plough ahead with the two rises to the interest rates the markets had expected.
Sarah Coles, head of personal finance at AJ Bell, explained if the peace process is successful, rate expectations will change.
“The Bank of England forecasts that price rises will build into the autumn,” she said. “However, the falling oil price means this could be a relatively short, sharp period of price rises rather than anything more significant as had been feared.
“In the middle of last week, markets were pricing in two interest rate hikes by early 2027.
“The probabilities have now shifted to just one rate hike by December and then potentially no change for at least the first half of 2027. This is good news for mortgage borrowers, because lower rate expectations will mean fixed rate mortgages come down.
“Some of the more competitive deals fell last week, and we should see more widespread good news on deals across the market this week.”
Will interest rates rise or stay put this week?
The next Bank of England decision on the direction of interest rates is due to take place on Thursday (18 June). But how will the latest development in the Middle East impact this looming decision?
Most experts and mortgage brokers think the most likely outcome is they will hold the Base Rate at 3.75%.
Susannah Streeter, chief investment strategist at Wealth Club, said: “Worries about multiple rate hikes this year from the Bank of England look set to recede.
“Numerous policymakers have indicated they are inclined to take a wait-and-see stance so it’s highly likely there will be no change when they meet on Thursday.
“With the UK economy contracting in April and consumers and firms nervous about spending and investing, decision makers will be weighing up the risks of higher inflation against a struggling business backdrop.”
Mortgage deal ending? What to do now
If you are due to come off a fixed rate deal, particularly a five-year fix secured when rates were at rock bottom, you are most likely bracing yourself for a payment shock.
You may be wondering whether to wait and see if the peace deal leads to lower fixed rates going forward.
Coles advice to you, and anyone looking to buy a home, was to take advantage of deals as they emerged.
“There’s real hope that peace will endure, but there are no guarantees, so it’s worth securing a better rate while they last,” she added.
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