Will it be enough for the Bank of England to bring the base rate down?
UK inflation fell to the Bank of England’s target rate of 2% in May, consumer price inflation (CPI) data published by the Office for National Statistics (ONS) on Wednesday has shown.
Annual CPI was 0.3% lower in May 2024 compared to the 2.3% in the 12 months to April. Prices rose at the slowest rate last month since July 2021.
On a monthly basis, CPI rose by 0.3% in May 2024, compared with a rise of 0.7% in May 2023.
ONS said the largest downward contribution to the monthly change in the CPI annual rate came from food, with prices falling this year but rising a year ago. The largest upward contribution came from motor fuels, with prices rising slightly this year but falling a year ago.
In the 12 months to May 2024:
— Office for National Statistics (ONS) (@ONS) June 19, 2024
· Consumer Prices Index (CPI) rose by 2.0%, down from 2.3% in April
· Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.8%, down from 3.0% in April
Read Consumer price inflation ➡️ https://t.co/fDtPVw0dL1 pic.twitter.com/nJcbUU41AQ
“Inflation has eased to 2% in May, hitting the Bank of England’s official target for the first time since July 2021,” said Simon Webb, managing director of capital markets at LiveMore. “This marks a significant improvement from the inflationary pressures of the past year.
“Core inflation, which removes food and energy prices, was also down to 4.2% from 4.4%, and plays a key part in the Monetary Policy Committee’s interest rate decisions.
“It will be interesting to see how this impacts the Bank of England’s decision on the base rate tomorrow. The question is will it be enough to bring it down? And if it does, will this be a big win for the Conservatives? Likely, it will not be enough for either outcome.”
Ben Thompson, deputy chief executive at Mortgage Advice Bureau, said that May’s inflation drop, in other circumstances, may have prompted some positive movements in the mortgage market. But, with rate cuts largely priced in, the Fed dragging its heels and a General Election in a matter of days, the Bank of England will be reluctant to make any waves.
“This doesn’t mean it’s a time to sit still for those aiming to get on the property ladder or with mortgage deals due to expire,” Thompson added. “Mortgage rates are unlikely to drop really significantly when the Bank of England does cut rates, so now is the time to get on the front foot, speak to a broker and get mortgage ready. There are competitive deals on the market to be taken advantage of.”
“Finally reaching the target rate of 2% suggests that the Bank of England’s cautious approach to cutting interest rates is working,” added Andy Mielczarek, founder and chief executive of SmartSave. “A year ago, this news would have been cause for celebration. So why does the mood seem so low?”
For one thing, the cost-of-living crisis is far from over, as inflation has proved frustratingly sticky. The cost of essential items and household bills are still dangerously high, and debt repayments continue to weigh on household incomes. No doubt all eyes will be fixed on tomorrow’s interest rate announcement, with many fingers crossed for a cut.
“Now more than ever, people must be proactive. With inflation at a three-year low, there is a golden opportunity for savers to lock down the best long-term savings opportunities while they last. No matter the outcome of tomorrow’s Bank of England meeting, there are clear indications that it won’t be long until interest rates follow inflation in its downward trend.”
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