A much-longed-for cut to interest rates in June is looking less likely after new inflation data showed prices were not falling at the pace expected.
It was announced today that inflation as measured by the Consumer Price Index (CPI) had fallen from 3.4% in February to 3.2% in March.
Inflation measures the increase in the price of goods and services over a year. So, whilst prices were rising between March 2023 and March 2024, the increase is not as steep as in February.
Experts had predicted inflation would fall to 3.1% in March. So, there are now concerns prices rises were not easing sufficiently to persuade the Bank of England (BoE) into making that all-important first interest rate cut.
The BoE would like to see inflation at 2% and between December 2021 and August 2022 consistently increased interest rates in a bid to bring it down to this target.
David Hollingworth, associate director, communications at L&C Mortgages said: “The Bank is likely to take the threat of inflation remaining higher for longer seriously and has repeatedly suggested it won’t act until it’s sure that inflation is under control.”
And Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, echoed this. She said: “Naturally, most households would want an interest rate cut to happen as soon as possible to reduce the impact of high borrowing costs, but they may have to wait longer than hoped with economists divided on when a rate reduction will happen.
“While some are tipping a summer rate cut as early as June, others expect a change in August or even in the autumn.
“Easing inflation does not automatically guarantee an imminent interest rate cut. While the BoE acknowledges that interest rate cuts are the ‘direction of travel’, they say they require consistent evidence that inflationary pressures are in retreat before they can make a move.”
How will this impact your mortgage?
With a cut in rates looking unlikely for at least another two months at the very least, what does this mean for your mortgage?
Both Haine and Hollingworth said borrowing costs remaining higher for longer would influence how lenders priced their fixed rate mortgages.
Hollingworth said: “Market expectation will be important in determining fixed rate pricing. Fixed rates have fallen substantially since last summer but have largely stabilised.
“With uncertainty still in the air as to how quickly base rate may fall, those holding out for further cuts may find themselves in for a long wait.
“The better approach could be to secure a rate now and keep a close review of movements before completion. A move to a better rate can still be made but a rate is already in place if things take a turn and rates edge higher.”
