Core CPI inflation (stripping out energy, food, alcohol and tobacco) was 3.9%, down from 4.2% in March.
Susannah Streeter, head of money and markets at business consultancy Hargreaves Lansdown, says: “The hot mess of inflation has cooled, but it’s not quite at the perfect temperature, which means an immediate interest rate cut looks set to remain elusive … As interest rates have shot up, putting a vice-like grip on household budgets, demand has been squeezed out of the economy, but external inflationary pressures like energy costs have also eased off. Even though inflation coming close to target is clearly highly welcome, it doesn’t automatically mean inflation has been relegated from the league of threats.
“It looks increasingly likely that a rate cut may still not come until August. Even so, it’s more stable ground for investors in the UK. As inflation falls back, they are enjoying the double benefit of recovering capital values and dividend yields above the rate of rising prices, with a typical UK All Share tracker yielding 3.5%.’’
The energy price cap, which played a significant part in inflation falling this month (energy prices are down £238 in a year to £1,690) are likely to fall further later in the summer with another cut in July to around £1,574.
Tim Bannister, Rightmove’s property expert, comments: “While today’s number is a little higher than economists forecast, it is a move in the right direction. It always takes time for people to feel the benefits of lower inflation, but the downward trajectory of inflation is good for the health of the market. Affordability has been tightly squeezed over the last couple of years as rates have gone up, however determined movers have continued to find a way. There are positive signs, including a stronger spring market than last year, however we still have more than half the year to go, and an election to come at some point, so it’s not smooth sailing yet.”
Emily Williams, director of research at Savills, says of the latest inflation figures: “Today’s inflation figures will give the markets more confidence that a cut to the base rate is on the horizon. If this feeds through into mortgage pricing, we expect to see transactional activity start to pick up as it did at the start of the year. Mortgage affordability is the largest challenge currently facing buyers, with mortgage approvals in March 2024 23% below the pre-pandemic norm.
“Political and economic uncertainty means buyers will likely remain cautious, but the overall outlook has certainly improved, pointing to relatively modest house price growth this year. Savills revised forecast expects house prices to grow 2.5% in 2024.”
Tom Bill, head of UK residential research at Knight Frank, is a little less bullish and says: “For anyone buying a property or re-mortgaging, today’s inflation data is not great news. Stubborn services inflation is pushing the prospect of the first rate cut since March 2020 further into the distance, which will keep upwards pressure on mortgage rates. Combined with rising supply and a wave of owners rolling off sub-2% mortgages, it will maintain downwards pressure on house prices.”
