Inflation rose by 3.4% in February, according to the latest Office for National Statistic (ONS) data released today. Whilst this shows the prices of goods and services has increased by 3.4% over the last year – it’s an improvement on the 4% rise experienced in December and January.
The fact inflation has eased is also offering hope of a long-awaited interest rate cut – something which will come as welcome news to mortgage borrowers.
The Bank of England has been increasing interest rates in order to tame inflation. Therefore, with inflation falling closer to its 2% target, a cut to the base rate is looking more likely.
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, thought the cut may happen in early summer.
“If inflation continues its downwards trend,” she said, “the Bank of England could cut interest rates as early as June, which will stimulate the market.”
And Mark Harris, chief executive of mortgage broker SPF Private Clients, agreed: “With inflation falling to 3.4%, it’s time for the Bank of England to be bold and start cutting interest rates.
“With inflation heading in the right direction, a rate cut will give the housing market a welcome boost.”
He explained: “Falling interest rates will have a knock-on effect on Swap rates, which underpin the pricing of fixed-rate mortgages.
“Five-year Swap rates fell this morning to 3.90% from 3.97% yesterday and if this trend continues, lenders will have more confidence and ability to reduce mortgage rates, which in turn will boost borrower affordability.”
Will interest rates be cut this month?
The Bank of England’s Monetary Policy Committee (MPC), which makes the decision on interest rates, is due to meet tomorrow. It is widely expected they will continue to hold the base rate at 5.25%.
This will be the fifth time it has held the rate at this level, following 14 consecutive increases between December 2021 and August 2023.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “With the first rate cut not expected until the summer, all eyes are pinned on what the central bank has to say tomorrow to see if there are any hints of earlier action.”
She added: “For now, however, the BoE is likely to want more consistent evidence that inflationary pressures really are easing before it initiates an interest rate cut.
“This means borrowing costs could remain higher for longer – not the news households will want to hear as they struggle to balance their budgets after a challenging couple of years.”
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