Experts discuss whether a Bank of England rate cut will come soon
The UK’s annual inflation rate stood at 4% in January, unchanged from the previous month’s figure - but was lower than market forecasts.
Consumer price inflation (CPI) data published by the Office for National Statistics (ONS) on Wednesday also showed an annual increase in core CPI – which excludes energy, food, alcohol and tobacco – to 5.1% in the 12 months to January, also the same rate as December 2023.
The inflation figures were better than expected as economists had anticipated a further increase to 4.2% before today’s announcement.
“Inflation was unchanged in January, reflecting counteracting effects within the basket of goods and services,” Grant Fitzner, chief economist at the Office for National Statistics, commented on the latest inflation figures.
“The price of gas and electricity rose at a higher rate than this time last year due to the increase in the energy price cap, while the cost of second-hand cars went up for the first time since May.
“Offsetting these, prices of furniture and household goods decreased by more than a year ago and food prices fell on the month for the first time in over two years. All of these factors combined resulted in no change to the headline rate this month.”
In the year to January 2024:
— Office for National Statistics (ONS) (@ONS) February 14, 2024
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2%, the same rate as December.
▪️ Consumer Prices Index (CPI) rose by 4.0%, unchanged from 4.0% in December.
➡️ https://t.co/OgNFNwsta0 pic.twitter.com/MWx8Sz8iCo
“We’ve arrived at a standstill,” said Paresh Raja, chief executive at Market Financial Solutions. “Inflation refuses to fall away to the Bank of England’s 2% target, which is delaying the point at which the base rate starts to fall.
“That said, all expectations are that it is only a matter of time until the cuts do come, and lenders have been repricing products accordingly in the first six weeks of the year – this can be seen across residential mortgages, as well as bridging and BTL mortgages.”
Raja added that the fact that inflation is no longer falling poses an interesting challenge to the chancellor, Jeremy Hunt.
“The chancellor is delivering his Spring Budget in exactly three weeks’ time, and the ongoing battle between high inflation and elevated interest rates must be high on his agenda,” he said. “In the meantime, lenders need to be proactive to ensure the property market remains active despite lingering economic challenges.”
According to Andy Mielczarek, founder and chief executive of SmartSave, while inflation is not budging, today’s data does at least defy many experts’ predictions of another rise.
“Either way, it will all fuel the ongoing discussion around when the Bank of England will start cutting the base rate,” Mielczarek said. “But there’s still a considerable distance to cover before the bank’s 2% inflation target is reached.
“At this time, those in a position to save lump sums should be proactive, capitalising on any potential advantages presented by the heightened base rate. The Bank of England’s next interest rates decision comes on March 21, and all eyes will be firmly on how the battle against inflation shapes up over the intervening six weeks.”
Nicholas Mendes, head of marketing at independent mortgage broker John Charcol, said the bank rate is anticipated to decrease sooner than initially projected last year, now being priced in for June, with no further increases on the horizon.
“Two- and five-year fixed rates have priced upwards in recent weeks and days as a result of continuing increase in swap movement,” he noted. “But this trend isn’t expected to be a sign of things to come for 2024.”
Mendes advised mortgage customers not to just “sit on the sidelines waiting for the perfect moment.”
“Timing the market isn’t a practical strategy,” he said. “Lenders frequently adjust their pricing based on market conditions. It’s crucial not to miss out on a great deal while holding out for something better.
“A mortgage broker is your ally in this dynamic market, diligently monitoring it to ensure you get the best deal available at the time. They’ll regularly check the market to ensure you get the best deal before completion.”
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