Inflation remained unchanged at 4% in January with the recent energy price cap hike being attributed to keeping the figure propped up.
The Bank of England’s target for inflation is 2% and whilst it had been falling for much of 2023, it made a surprise upturn in December to 4%.
The fact it has remained at this level may cause concern to many. Not least those focussed on taking out a mortgage or remortgage.
Indeed, the Bank of England had been increasing interest rates in a bid to bring inflation down. But the fact it has risen and now remains at 4% could reduce the likelihood of a much-hoped-for cut to the base rate.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the flat figure was likely to be ‘more of a blip’ as it was largely driven by the rise in the energy price cap at the start of the year.
She added: “However, with core CPI inflation, which strips out the more volatile items such as food, energy and tobacco, also remaining flat at 5.1% in January, this may put a spanner in the works for the Bank of England as it considers when to make interest rate cuts, something many households were hoping would happen sooner rather than later this year.”
How will this impact people taking out a mortgage?
Today’s data comes in a week that some mortgage rates began to creep up again in response to rising SWAP rates – lenders use these to set their pricing.
According to Nicholas Mendes, mortgage technical manager at John Charcol, the Bank of England base rate is anticipated to decrease sooner than initially projected last year and is now being priced in for June, with no further increases on the horizon.
He said: “Two-year and five-year fixed rates have priced upwards in recent weeks and days as a result continuing increase in SWAP movement, but this trend isn’t expected to be a sign of things to come for 2024.”
His advice for mortgage holders coming to the end of their fixed rate was not to ‘sit on the sidelines waiting for the perfect moment’.
“Timing the market isn’t a practical strategy,” he said. “Lenders frequently adjust their pricing based on market conditions. It’s crucial not to miss out on a great deal while holding out for something better.
“A mortgage broker is your ally in this dynamic market, diligently monitoring it to ensure you get the best deal available at the time. They’ll regularly check the market to ensure you get the best deal before completion.”
He added: “As you approach the end of your current deal, approximately six months before the fixed rate concludes, you can explore new deals with different lenders. This approach not only provides security against potential rate rises but also allows flexibility.
“If a superior rate becomes available, you can make the switch without losing anything. Having a broker by your side makes this process seamless and ensures you make the most of every opportunity.”
Meanwhile Clare Batchelor, mortgage operations manager at Wesleyan Financial Services, was optimistic about inflation and interest rates going forward.
She added: “The Energy Price Cap went up 5% in January, but it is expected to fall by as much as 16% in April, with another reduction forecast for the summer. With food inflation continuing to slow as well, we can expect positive news on inflation in the months ahead.
“Against this backdrop, the Bank of England is still likely to start cutting interest rates this year, to the relief of many mortgage holders. The only question is ‘when?’
“Those looking to remortgage, or get on the housing ladder, should continue to review their options so they’re ready to quickly take advantage of better deals.”
