Inflation may have eased off slightly in May but experts don’t think the drop will be enough for the Bank of England to cut interest rates tomorrow.
The Consumer Prices Index, which measures the cost of goods and services over 12 months, rose by 3.4% in May, compared to 3.5% in April.
Whilst it shows price rises had slackened a little, it is still a far cry from the 2% target the Bank of England (BoE) prefers inflation to sit at if it is to lower interest rates.
It is due to announce tomorrow (Thursday 19 June) where it has set the Base Rate and the expectation had been it would remain at 4.25%. Today’s inflation data has not altered that perspective.
David Hollingworth, associate director at L&C Mortgages said: “The slight drop back in the rate of inflation to 3.4% in May is where the April figure would have been if the figures had been right.
“Whether you view this as a reduction or a hold will make little difference to mortgage borrowers, who will be resigned to base rate being held by the Monetary Policy Committee tomorrow.
“The rate of inflation remains well above the Bank of England’s target. Its determination to ensure that inflation can be brought under sustainable control [means] a rate cut tomorrow would be seen as a shock. Slow and steady is likely to be the message once again despite the concerns over a contraction in the economy.”
This viewpoint was echoed by Alice Haine personal finance analyst at Bestinvest by Evelyn Partners, who said: “Some households still feeling financially squeezed may be hoping for action on rates from the BoE this week to ease borrowing costs further, but they may have to wait a little longer.”
She added: “The Bank of England is expected to adopt a cautious stance on the pace of interest rate cuts, keeping the headline rate on hold at its rate-setting meeting this week.”
How will this impact your mortgages?
Whilst mortgage rates are lower than they were a year ago, several lenders making price hikes in recent weeks has meant the rate at which prices have fallen for borrowers has slowed.
With a Bank of England base rate cut unlikely tomorrow, how does this bode for mortgage rates going forward?
Hollingworth said: “Mortgage rates have been harder to call in recent weeks. After a period of fixed rate increases there’s now a more mixed move in rates with some lenders cutting deals again slightly, as markets find their level.
“Overall, it looks as though fixed rates may bobble up and down without any significant trend or shift either way.
“That said there’s clearly a great deal of uncertainty as global events unfold. Borrowers would be better to focus on getting the best available rates and keeping under review, rather than second guess the next move in interest rates.”
