With UK inflation slowing slightly less than expected last month, many economists and investors have revised their forecasts for interest rate cuts this year.
Official figures revealed yesterday showed that inflation dropped in March to its lowest level since September 2021, driven by slower increases for food prices.
The Office for National Statistics (ONS) said Consumer Prices Index inflation stood at 3.2% in March, down from 3.4% in February.
It showed a slowdown in the rising cost of living, but was still above the 3.1% reading expected by a consensus of experts.The data, which also showed higher than expected services inflation, came after the ONS revealed on Tuesday that wage growth is also stronger-than-expected, after a 6% rise in the three months to February.
Consequently, City economists pushed back their forecasts for reductions to interest rates.
UK interest rates currently sit at a 15-year high of 5.25% after hikes by the Bank of England in an effort to quash inflation.
Peter Stimson, head of product at the mortgage lender MPowered, commented: “The Bank of England’s battle against inflation is far from over – and this is bad news for both the property and mortgage markets.
“While CPI continues to head in the right direction, it is still well above the Bank’s 2% target. With the economy returning to growth in January and February, the Bank will now be in no hurry to start reducing interest rates.
“GDP growth may be anaemic but it’s likely to be just enough to convince the Bank to continue administering its bitter monetary policy medicine.
“That’s why the swaps market – which mortgage lenders use to set the interest rates they offer to borrowers – increasingly suggests that a cut in Base Rate could still be several months off.”
Matt Smith, Rightmove’s mortgage expert, said that it is positive to see inflation continuing to fall, albeit not by quite as much as expected.
“The market is proving resilient despite broader global uncertainty, however, continued stability in mortgage rates should be seen as a positive outcome over the next few weeks,” he commented.
Paresh Raja, CEO of Market Financial Solutions, added: “Inflation remains above the Bank of England’s target of 2%, delaying an eagerly awaited rate cut for another couple of months at least. The over-riding sense is that the base rate will be cut in June, although all eyes are on the US Fed, with the Bank of England unlikely to act until cuts are made ‘across the pond’. Nevertheless, we are seeing that buyers, investors, brokers, and lenders within the UK property market are all gearing up for a more accommodative monetary policy environment.
“Lenders are constantly adapting their products in line with the economic outlook. Meanwhile, recent data unveils a significant uptick in mortgage approvals, accompanied by an upward trajectory in wages. In combination, these factors mean that prices are expected to continue to rise at the steady rate we have seen so far in 2024, and analysts predict that a stabilisation or slight uptick in prices by year-end as the market begins to benefit buyers to a greater extent than sellers.
“This outlook is positive, but the economic environment remains challenging. Today’s inflation data will continue to imbue the property market with a growing sense of confidence as the economic horizon brightens.”
