Inflation fell to 2.3% in April improving the prospects of an interest rate cut in August, experts say.
The Consumer Prices Index (CPI), which measures the increase in prices of goods and services, rose by 2.3% in the year to April. This compares to a rise of 3.2% in the year to March.
It means prices are still rising, but they are doing so at a slower pace. And it means inflation is nearly at the Bank of England’s (BoE) target of 2%.
The central bank has raised interest rates in a bid to bring inflation back to this level. Therefore, with the figure edging ever-closer to 2% there is more incentive for the BoE to cut interest rate – something which will come as a huge relief to homeowners and buyers.
Whilst many had hoped for an interest rate cut next month, Nicholas Mendes, mortgage technical manager at John Charcol, said the decision makers at the BoE – the Monetary Policy Committee (MPC) – would hold out for the 2% target meaning August rather than June was a more likely date for the cut.
Meanwhile, Colleen McHugh, chief investment officer of Wealthify, said: “After last week’s decision to hold the base rate at 5.25%, BoE Governor Andrew Bailey struck a doveish tone in his ensuing press conference.
“With a divided bank committee, he may need more evidence to be comfortable with cutting rates. If it were a coin toss for a June rate cut before today’s inflation numbers, the coin is now surely weighted toward an August cut.”
What does this mean for your mortgage?
With the interest rate cut looking likely to be several months down the line, experts believe mortgage rates will stay at their current levels.
“Mortgage rates haven’t decreased as swiftly as many expected,” Mendes said, “despite early-year optimism among lenders.
“Although rates have dropped from last year’s peaks, many mortgage holders hoped for a more significant reduction by now or a more stable market in which to make decisions.
“Today’s announcement indicates that markets will likely price in a prolonged hold, meaning mortgage rates will remain around their current levels for a bit longer.
“It’s important to stress that until an official bank rate cut occurs, any declines in fixed rates will be gradual and steady, rather than the rapid weekly decreases seen earlier this year, as swaps have remained settled based on initial market reactions.”
Mendes suggested those with fixed rate mortgages which are coming to end in the next three to six months started reviewing options now.
“Assess your financial situation, check your credit score, and compare current mortgage rates,” he said.
“Consulting a mortgage broker can provide valuable guidance tailored to your specific need such as whether to switch to a new fixed rate, opt for a variable rate, or remortgage with a different lender.”
