Inflation has finally fallen to the Bank of England target of 2% - the first time it has done so in almost three years.
But what does this mean for mortgages, ahead of the next Bank of England meeting tomorrow? Inflation started rising in 2021, leading the Bank of England to put up its base rate for the first time in December 2021. The base rate was at an historic low of 0.1% before this first Bank of England increase. It now sits at 5.25% and has been at this level since August 2023.
The Bank of England has kept the base rate paused for its past five Monetary Policy Committee (MPC) meetings, with millions of homeowners hoping that a cut could be on the cards soon. It had been raising interest rates to increase borrowing costs, so people will then spend less and this would bring inflation down.
The plan has worked, as inflation reached a peak of 11.1% in October 2022, so it has come down drastically since then - but is it enough to sway the Bank of England to finally cut rates? Bank of England Governor Andrew Bailey previously said the base rate won't be cut until the MPC is sure inflation will remain under control.
This means the Bank of England needs to be sure inflation will stay down - due to this, the majority of economists and financial analysts are still more convinced that a rate cut could come in August. Julian Jessop, Economics Fellow at the Institute of Economic Affairs, said: "Most MPC members will probably still want to wait until August, when there will be much more evidence on the persistence or otherwise of inflation, and a new set of staff forecasts in the quarterly Monetary Policy Report. This is the market consensus too."
Peter Stimson, Head of Product at MPowered Mortgages, said core inflation is also a sticking point for the Bank of England. He said: "Despite the welcome fall in the headline CPI figure, core inflation remains stubbornly high at 3.5%. This is well above the Bank’s target, and its rate-setters will want to see further improvement here before committing to a rate cut. So even though mortgage borrowers and lenders are crying out for the base rate to start coming down now, we are likely to have to wait until after the election – and probably until August – before relief finally comes."
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said wage inflation will also be a concern for the Bank of England. She said: "It doesn’t look like the Bank of England will join the celebratory party immediately and cut interest rates tomorrow. Policymakers still have their eye on hot wage inflation, with earnings including bonuses still running at 6%, at the last count."
Mortgage rates also remain unchanged today. Latest figures from Moneyfacts show the average two-year fixed residential mortgage rate today is 5.97%, while the average five-year fix is 5.54%. There are currently 6,673 residential mortgage products available, up from 6,658 on the previous working day.