Interest rate cuts could be put on hold as inflation soared to 3.5% in April from 2.6% in March.
The sharp rise in the cost of goods and services over the year has been attributed to the price hikes in April when households saw increases in council tax, energy and water bills, broadband and stamp duty.
Now it is likely to have an impact on mortgage rates as higher inflation will make the Bank of England reluctant to cut interest rates next month. It will also impact swap rates, which lenders use to set their pricing.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Mortgaged homeowners and first-time buyers may be disheartened by the latest inflation reading, as it raises the risk that the pace of interest rate cuts may slow from there.
“The next rate cut decision in June will be based on a myriad of factors and Britain’s concerning inflation picture coincides with a time when the economy is expected to slow.”
The Bank of England’s target rate for inflation is 2% and to maintain it at this level interest rates need to be high.
According to experts the Bank of England had previously forecast inflation would peak at 3.7% in the summer before returning to the 2% target.
Today’s rise in inflation had been expected because of the ‘Awful April’ price hikes. Yet, it will still come as blow to households, especially those who have mortgages and were hoping for more price cuts.
Justin Moy, managing director at EHF Mortgages, speaking via Newspage Agency, thinks mortgage rates will increase. He said: “This was always going to be the month with a significant jump, with the inflation figure including a multitude of tax increases due from April.
“This increase is certainly going to stall the recent mortgage rate improvements, and with inflation due to stay above 3% for the rest of the year it may be too much to expect further base rate cuts in 2025. And that’s why mortgage rates will edge upwards in the next few weeks.”
