Interest Rate Cuts on hold after disappointing figures

Inflation has eased to 3.2% down from 3.4%, official figures from the Office for National Statistics show, the lowest level since 2021.

But most economists had predicted the figure, which covers the month of March, would fall to 3.1%. 

While inflation has fallen slightly, the UK's figure still remains one of the highest in the G7.  Our headline rate of 3.2% is nearly 1% more than Germany, which as recorded a 2.3% rate. The US is still sitting above the UK, with an expected rise from 3.2% in February to 3.5% in March.

Tom Bill, residential research chief at Knight Frank, says: “Marginally higher-than-expected inflation is not good news for anyone hoping to agree a mortgage starting with a ‘3’ any time soon. Higher borrowing costs, increased supply and a wave of owners rolling off sub-2% mortgages agreed in early 2022 are all putting downwards pressure on house prices. 

“That said, mortgage approvals hit a 17-month high in February, which means there should be a recognisable spring bounce this year. We expect UK prices to rise by 3% in 2024 as core inflation is tamed and borrowing costs eventually begin to fall.”

Craig Fish, director of Lodestone Mortgages and Protection, says: “With the energy price cap reducing in April, there is hope that this will feed through to the numbers we see in the next [figures] but with fuel prices rising at the pump again and wage inflation still not reading as the Bank of England want it to, there is diminishing hope of a rate cut in June. SWAP rates and lender rates are ticking up again, so we are not out of the woods yet.”

And Riz Malik, director of R3 Mortgages, adds: “The final push to the 2% inflation target will likely be the hardest. However, [governor] Andrew Bailey has highlighted that the UK and US's inflation issues are different, signalling that a Bank of England rate cut ahead of the Fed may be possible. This is unlikely to move the property market but increases the likelihood of a cut at either the June or August meeting.”

Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, also believes the disappointing inflation figure will delay good news for the housing market. 

She says: “Homeowners with a remortgage on the horizon will be desperate for a sign that a rate cut is around the corner. The inflation figures show we’re inching in the right direction, but they’ve still got a wait on their hands.

“There are still an awful lot of inflationary pressures the Bank will be keeping a beady eye on. Rising oil prices showed up in higher petrol prices in March, and over time it will feed into the price of everything that’s manufactured, transported or sold in a shop that needs heating and lighting. At the same time, wages are still rising faster than inflation, so the Monetary Policy Committee is not going to be keen to rush into anything, and the market is pricing in a rate rise no earlier than August.”