UK inflation has dropped to 2.3% for April, nearing the Bank of England’s target of 2%, according to the latest figures released by the Office for National Statistics (ONS).
The Consumer Prices Index (CPI) had fallen to 3.2% in March compared with the previous year, and forecasters had predicted a further decline to around 2.1% for April. The actual figure of 2.3% increases pressure on the Bank of England to cut interest rates from their 16-year high of 5.25%.
Policymakers at the central bank have increased interest rates over the past two years to tackle inflation, aiming to bring it down to below 2% after it peaked at 11.1% in 2022.
The fall in inflation comes just days after Ben Broadbent, deputy governor of the BoE, suggested that UK interest rates could be cut as soon as this summer. In a speech on Monday morning, he said it is “possible” borrowing costs will decrease this summer if the economy evolves as expected.
Broadbent noted that the Bank’s nine-member Monetary Policy Committee (MPC), which votes on potential interest rate changes, must assess how wage and services inflation are developing. He added, “Whatever the priors of its individual members, the MPC will continue to learn from the incoming data and, if things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it’s possible the bank rate could be cut sometime over the summer.”
Earlier this month, Broadbent was among those who voted to keep interest rates at 5.25%, with the MPC voting 7-2 in favour of no change.
Financial markets have priced in a reduction in interest rates by August.
Pantheon Economics had predicted inflation would reach 2%, while Capital Economics expected it could dip even lower to 1.9%. The Bank of England’s own forecast was 2.1%.
Reaction
Craig Fish, director at Lodestone Mortgages & Protection:
“Close but no cigar, is how this number can be described. A big drop but not as much as hoped or expected by the Bank of England. As a result, it will likely be business as normal at the next MPC meeting resulting in a hold in base rate and misery for those with, or looking for, a mortgage. We live in hope of the next set of data.”
Riz Malik, director at R3 Mortgages:
“Today’s drop in inflation is welcome but behind expectations. Considering this time last year CPI inflation was 8.7% we have come a long way. The next inflation data will come before the Bank of England make their June decision so an interest rate cut in June could still be on the cards. If we are disappointed in June, there is a good chance we will be celebrating in August. Then we really could see the housing market accelerate in the second half of the year.”
Katy Eatenton, mortgage & protection specialist at Lifetime Wealth Management:
“Despairingly this drop won’t be significant enough for the MPC to cut rates at the next meeting. I’m still predicting the end of the summer for the first rate reduction”
Justin Moy, managing director at EHF Mortgages:
“A case of so near, yet so far, for mortgage borrowers, with the MPC able to hide behind the higher-than-expected inflation to delay the base rate cut. This still represents an excellent step forward in the headline rate and will encourage the mortgage lenders and Swap rates to improve.”
Lewis Shaw, owner and mortgage expert at Shaw Financial Services:
“Sadly, the latest inflation print is higher than markets expected, which means that meaningful mortgage rate cuts are unlikely to happen anytime soon. Whilst the fall to 2.3% is welcome, the worrying part for policymakers sitting in Threadneedle Street will be the services inflation running at 6% and not moving along with core inflation, which remains sticky.
“It’s certainly not the news anyone wanted and will push back a Bank of England base rate cut to at least August rather than June, as some hoped. The mortgage misery continues for many, with the promise of better times still a few months away.”
Rohit Kohli, director at The Mortgage Stop:
“This morning’s inflation data, revealing a rate of 2.3%, offers substantial evidence for the Bank of England to consider alleviating borrower strain. Although it falls short of forecasts, it approaches the Bank’s target inflation rate. Coupled with the IMF’s recent revised outlook suggesting room for policy manoeuvres, borrowers will be forgiven for having increased expectations for action from Threadneedle Street.”
Robert Timm, managing director at Sunland Mortgages:
“Although 2.3% isn’t as much of a fall as anticipated, inflation is still falling and there’s still hope of that all-important base rate reduction in June which could breathe life into the industry”
Simon Bridgland, broker/director at Release Freedom:
“The hopes and dreams of borrowers wishing for an imminent base rate cut have been smashed on the rocks and they are very much left to tread water whilst government policy tinkers in the engine room rather than steering at the helm to safer waters. Somewhat lost at sea.”
Akhil Mair, director at Our Mortgage Broker:
“We are encouraged by the latest news that the Consumer Prices Index (CPI) rose by 2.3% in the 12 months to April 2024, a significant decrease from 3.2% in March. This lower-than-expected inflation rate suggests a positive shift for borrowers and the property market.
“For borrowers, the reduced inflation rate could mean more stable interest rates in the near term, potentially making mortgage repayments more manageable. This trend is favourable for the property market as it may boost buyer confidence and support sustained market activity.
“Regarding the Bank of England, the lower inflation figures could influence their decision on interest rates. While economists had predicted a smaller drop, the actual decrease might still be substantial enough to sway the Bank towards considering a rate cut in June.”
Hannah Bashford, director at Model Financial Solutions:
“We’re almost there! Only 0.3% off the 2% target. This is positive news despite coming in higher than economists predicted. We’re now so close to the target, it would be a huge blow if we didn’t see any rate cuts next month.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“With all the good news surrounding the economy, it’s no wonder inflation was hotter than predicted. This signals bad news for homeowners, as it’s the excuse the central bank needed to keep rates on hold for longer. Further evidence there won’t be a rate cut this summer.”
Ranald Mitchell, director at Charwin Private Clients:
“The UK CPI data, clocking in at 2.3% instead of the anticipated 2.1%, brings a bittersweet mix of relief and regret. While the slight rise above expectations dims the immediate prospects of a June base rate cut by the Bank of England, it’s still a sign of economic stability. Disappointingly close to the coveted 2% target, this figure fosters optimism for future fiscal fortitude.”
Emma Jones, managing director at Whenthebanksaysno.co.uk:
“Though the number wasn’t as low as expected, I am feeling positive as we move through 2024 that this will mean rate reductions from the Bank of England are on the way. This is exciting news for homeowners who are currently sat on tracker products waiting for cuts that will ease the burden of higher mortgage payments. Let’s hope two to three reductions happen this year as the IMF suggested yesterday.”
Ben Perks, managing director at Orchard Financial Advisers:
“We’re within touching distance of that god forsaken 2% barrier. The magical figure that stands between borrowers and better times. But, we are much closer and The Chancellor will be blowing his own trumpet with reckless disregard for what borrowers have endured along the way.
“The 2.3% will improve confidence and borrowers will be more buoyant about future prospects. All eyes will now turn to swap rates and if they react favourable better rates should be on the horizon. The pressure on the Bank of England to drop the rate in June is becoming overwhelming.
“Everything now points toward a base rate drop, the IMF report yesterday highlighted the risks of not dropping and unemployment, insolvency and credit balance data recently have shown the people are desperate for it. It’s time; do the right thing.”
Nicholas Mendes, mortgage technical manager at John Charchol:
“UK inflation has decreased to 2.3% in the latest figures, slightly above the 2% target and at the upper end of market expectations. This increases the likelihood of a bank rate reduction in August rather than June as the MPC hold out for their 2% target.
“Mortgage rates haven’t decreased as swiftly as many expected, 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.”
Scott Gallacher, director at Rowley Turton:
“The fall in inflation is potentially great news for borrowers and the economy, indicating we may finally be through the worst of the Covid supply shocks. However, the Bank of England will be concerned it hasn’t fallen further. The BoE will likely wait for more consistent signs of inflation nearing its target before reducing interest rates. Therefore, a June rate cut is now less likely.”
Nathan Emerson, CEO of Propertymark:
“It’s extremely positive to see inflation take a further dip downwards, after what has been an extremely challenging few years for many households. Over the coming months, we are optimistic to see the Bank of England respond to today’s news by lowering the base rate.
“For many, this will be a much-welcomed relief regarding household affordability and give people a new flexibility to approach the housing market with greater confidence.”
Ben Nichols, interim managing director at RAW Capital Partners:
“Borrowers, brokers, and lenders can afford themselves a quiet sigh of relief as inflation continues its retreat towards the Bank of England’s 2% target. With inflation seemingly under control, the likelihood of summer interest rate cuts grows more certain—a welcome development for homebuyers and mortgage-holders alike.”
“Now, it’s important to note that rates won’t decrease as quickly or significantly as they rose, but a stable inflation climate should still boost economic confidence, encouraging investment and growth in the UK property market. What’s more, with many investors having paused their buying plans in recent months, pent-up demand could spark robust market activity in the short to medium future.
“That said, it’s important to remember that rates are still much higher than we grew accustomed to in the 2010s. As such, lenders and brokers must continue to collaborate and support borrowers navigating the challenge of higher mortgage payments.“
Paresh Raja, CEO of Market Financial Solutions:
“At long last, the UK’s rate of inflation has fallen to around the Bank of England’s (BoE) target of 2%, offering a significant reprieve for investors after three years of eyewatering price increases. With purchasing power now returning to a more normal level, the positive house price data that we have witnessed in the last week is likely to be compounded as more investors look to re-enter what is now a recovering market.
“However, it is important to acknowledge that while inflation is trending downwards, we are still not at a point where interest rates are going to be reduced significantly. Indeed, the BoE’s Deputy Governor has indicated that rates will be cut this summer, but the journey to a more manageable base rate will continue for some time.
“Therefore, it is crucial that lenders and brokers play a supportive role for investors as they transition to a more open monetary landscape. By providing bespoke financial products and a high level of certainty, they can ensure continued positive momentum as inflation continues to fall.”
Ben Thompson, deputy CEO at Mortgage Advice Bureau:
“Inflation in April being just 0.3% above the Bank of England’s 2% target could be the spark to light the fire of the housing market. With inflationary pressures slowing closer to levels that the Bank of England are likely to be happy with, swap rates will fall further, and therefore those remortgaging or buying will see rates fall as a result. As we edge closer to a transformative period in the housing market, now is the time to speak with a broker and get mortgage ready.”
Neil Rudge, head of enterprise at Shawbrook:
“A fall in May’s inflation rate will be met with renewed positivity by the UK’s business community, who will no doubt now turn their eyes toward the Bank of England’s next interest rate decision. “With first quarter GDP and real income figures returning to growth, along with the recent FTSE boom, the UK’s economic outlook is looking primed for recovery. Furthermore, our own research has shown that businesses are feeling more confident now compared to last year, spelling positive news for times ahead.
“While there may be cause for a subtle celebration, and the recent uptick we’ve seen in funding enquiries indicates a renewed sense of optimism, businesses should continue to remain cautious and considered as we move through this period of recovery.”
Simon Webb, managing director of capital markets and LiveMore:
“Inflation has fallen again, reaching 2.3% in April, down from 3.2% in March. This continues the welcome trend we’ve seen since the October 2022 peak.”
“This sustained decline reflects real progress towards the Bank of England’s 2% target. While still some way to go, this is a significant improvement on the inflationary pressures of the past year.”
“Core inflation, a key metric for the Monetary Policy Committee, reflects this downward trend as well. This data should provide some breathing room for the MPC regarding interest rate decisions.”
“We remain optimistic about the UK’s economic recovery, albeit a gradual one. But we recognise that older borrowers and mortgage prisoners will still be feeling the pressures of the continuing high cost of living. We encourage them to seek well-informed advice to capitalise on opportunities presented by this improving economic climate.”
Daniel Austin, CEO and co-founder at ASK Partners:
“This fall in inflation is significant. It takes us very near to the Bank of England’s target of 2%, which means we might see an interest-rate cut as early as next month. This potential rate cut is a crucial development, as lower interest rates typically reduce the cost of borrowing. In anticipation of this move, we have already seen major high-street lenders make cuts to mortgage rates.
“This proactive step will start making life somewhat easier for borrowers by lowering monthly payments and reducing overall interest expenses. The positive ripple effects of this trend are multifaceted. Lower mortgage rates can stimulate the housing market, as they make home loans more affordable.
“This affordability can encourage first-time buyers and those looking to move to more expensive properties to take the plunge. With financial pressures easing, more people will feel encouraged to enter the property market again, potentially leading to an increase in property sales and a boost in related industries such as construction and home improvement.”
Adam Oldfield, chief revenue officer at Phoebus:
“Today’s continuing fall in inflation to 2.3% from 3.2% can mainly be attributed to the sharp drop in the energy price cap in April, which reduced domestic bills. This, alongside stronger-than-expected growth in Q1 has put the UK economy in a much stronger position.
“While we are so close to the Bank’s 2% sweet spot, in terms of a rate reduction come June, however, we may still be holding our breath. When it comes to decision-making, the Bank of England will be looking at persistent levels of inflation which cut out external forces such as gas and electricity prices. They will be closely monitoring, for example, the health of the UK service industry.
“Perhaps come 20th June, the BoE will align with The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) stance and reduce the base rate. In May, the SMPC advised an urgent and significant rate reduction to 4.75%, fearing future deflation on the back of rapidly falling inflation.”
Peter Stimson, head of product at MPowered:
“The Bank of England’s inflation target is finally within touching distance, and the Bank itself predicts it will reach the magic 2% mark within a few months.
“The members of the Bank’s interest rate-setting committee now need to make two critical decisions – when, and how quickly, to reduce the painfully high rates the Bank has been using to treat Britain’s inflation problem.
“With inflation now at a ‘normal’ level, the case for high interest rates no longer stacks up.
“The Bank’s bitter monetary policy medicine, which was required after inflation soared to its highest level in 40 years, is no longer needed. In fact, with economic growth still weak in many areas, the medicine is doing more harm than good.
“While the first Base Rate cut now looks likely to come in June, what’s not yet clear is how many more we’ll see this year.
“Yesterday the IMF suggested rates could be cut three times in the 2024 – and the property and mortgage markets will be praying this comes to pass.
“With the direction of the Bank’s policy, if not yet its speed, becoming clearer, competitive lenders are likely to start trimming their mortgage interest rates in coming weeks to grab market share as the property market emerges from its uncharacteristic spring slowdown.”
Katie Pender, managing director of Target:
“Today’s inflation figure is great news, taking the headline rate to just above the Bank of England’s 2% target, and a sharp drop from the previous monthly figure. Could this herald a much-anticipated interest rate cut this summer, making borrowing cheaper for homebuyers?
“However, we mustn’t forget the many homeowners who will still be tied into higher mortgage rates for some time. Affordability and supply will remain significant issues and, with a General Election imminent, whoever forms the next Government must tackle these. Whatever happens next, the latest technology is essential to making the homebuying process easier and speedier. What we can do is to continue to support lenders and borrowers with technology adoption.”
Matthew Chapman, associate partner at McKinsey & Company:
“The drop to 2.3% brings inflation back to near-normal levels. While the fall may not be as fast as some expected, the Bank of England’s 2% target is within touching distance.
“Service inflation remains high. And there may need to be further downward movements in service inflation, real wage growth and the labour market before the narrative on monetary policy can start to change.
“While sharp drops in energy prices and easing food costs have helped push the CPI reading to a three-year low, prices are still substantially higher than they once were. And households are likely to continue adjusting their budgets as the cost of some everyday staples continues to rise at more than double the current rate of inflation. For example, breakfast cereals are up 7.4% and vegetables like potatoes are up 7.9% with the cost of crisps also rising 7.7%.
“A return to the stable dynamics that prevailed before the COVID-19 pandemic still seems unlikely. Inflation is likely to still persist, growth sluggish and high interest rates may continue to create downward pressure on margins. To protect balance sheets, companies will need to remain vigilant and create opportunities to proactively react to cost and demand changes.”
