Yesterday’s bigger-than-expected inflation surge in April has prompted investors to bet on the Bank of England slowing its already gradual pace of interest rate cuts.
The annual inflation rate hit 3.5% in April, up from 2.6% in March, as the rise in the cost of household bills pushes UK inflation higher.
Water, gas and electricity prices all went up on 1 April along with a host of other bills, pushing inflation further above the Bank of England’s target of 2%.
Two interest rate cuts were expected this year, but some economists think April’s inflation figure means it is more likely there will be only one, and this could push up mortgage borrowing rates, according to some analysts.
Peter Stimson, director of mortgages at the lender MPowered, commented: “We expected a jump, but what we got was a leap – in both headline and core inflation.
“The surge in inflationary pressure won’t just translate into a slowdown in base rate cuts. We’re in ‘handbrake on’ territory.
“The prospect of the Bank of England reducing its Base Rate again in June has shifted from slim to non-existent.
“With the economy starting to expand at a decent clip, the Bank is now less concerned about stimulating growth. Getting inflation under control, and forcing it back down towards its 2% CPI target, is once again the Bank’s top priority.
“It will have its work cut out, as there are some worrying trends below the surface of today’s inflationary numbers. And while a number of temporary factors make April’s spike look particularly bad, no-one should expect inflation to return to target by itself.
“The swaps market – which determines mortgage interest rates – had already been pricing in a jump in inflation today and a delay in the next Base Rate cut.
“But with Britain’s inflationary problem back with such vengeance, the odds on a Base Rate cut in August have lengthened too. The path towards lower interest rates will be longer and slower than thought as recently as just a few weeks ago.
“For anyone planning to buy their first home or remortgage this summer, today’s inflation data will come as a blow.
“For now, mortgage rates have fallen as far as they can and we may even see them creep up over the next few weeks as lenders recalibrate their pricing in response to rising swap rates.”
Also reflected on the hike in inflation, Nathan Emerson, CEO at Propertymark, commented: “The numbers will likely come as a disappointment to many across the country. It remains vital that the UK economy delivers growth, to help keep inflation on track with the Bank of England’s 2% target or below. There is positive news that the wider global economy is responding to a calming down of international trading relationships, which will prove influential to the domestic economy.
“Housing plays a central role in boosting overall growth in the UK, and with the summer months being historically busy for the housing market, it’s likely that momentum will continue throughout this period, despite the economic turbulence across the first quarter of 2025.
“Inflation increasing may deter the Bank of England from dropping interest rates on 19 June; however, when the time is right, we hope to see them fall and more competitive mortgage deals appear across the lending spectrum.”
