REACTION: Interest rate cut ‘less likely’ after disappointing inflation figure

An interest rate cut could be delayed after disappointing figures showed inflation fell less than expected, experts have said.

A drop in inflation from 3.4% to 3.2%, and not the forecast 3.1%, prompted some economists to say the Bank of England may put off any reduction in the base rate.

Sluggish fall

The Bank has held the base rate at 5.25% at its last few Monetary Policy Committee meetings, but had been expected to at least consider a cut in June.

But news of a sluggish fall in inflation during March makes that less likely analysts predict even though the figure is now at its lowest since September 2021.

The chances of interest rates being cut for the first time in June are now a bit slimmer.”

Ruth Gregory at Capital Economics, says: “The chances of interest rates being cut for the first time in June are now a bit slimmer.”

And Neil Birrell, chief investment officer at Premier Miton Investors, says: “The data does mean it’s unlikely the Bank of England will move to the top of the starting grid when it comes to who cuts first.”

Though, there was some optimism, with Thomas Pugh, economist at RSM UK, saying: “We still think that the door is open to the first rate cut happening in June.”

And in the property sector, there are still positive predictions that the Bank will cut rates soon.

Industry Reaction

Nathan Emerson, CEO of Propertymark, says: “It is encouraging to see that inflation is starting to decline towards the same levels it was at prior to the Covid-19 pandemic.

“People will be relieved to start experiencing some normality again without fearing that prices will rise at almost unaffordable levels,” he says.

“When the Bank of England meets in May, we may see them begin to have the confidence to gradually cut interest rates in order to stimulate activity on the housing market during spring, traditionally one of the busiest times of the year for the housing market, especially when Propertymark’s own Housing Insight Report found that there has been an 18 per cent increase in new properties coming to the market. already”

Tom Bill, Head of UK Residential Research at Knight Frank, says: “Marginally higher-than-expected inflation is not good news for anyone hoping to agree a mortgage starting with a ‘3’ any time soon.

“Higher borrowing costs, increased supply and a wave of owners rolling off sub-2% mortgages agreed in early 2022 are all putting downwards pressure on house prices,” he says.

“That said, mortgage approvals hit a 17-month high in February, which means there should be a recognisable spring bounce this year. We expect UK prices to rise by 3% in 2024 as core inflation is tamed and borrowing costs eventually begin to fall.”

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, says: “A base rate cut from the Bank of England is still firmly on the cards for the summer, especially following today’s announcement that inflation continues to fall.

“Despite some unrest in the market, mortgage rates have stabilised, and with spring arriving we expect to see more confidence from buyers and lenders heading into the summer,” he says.

“Following a third consecutive month of growth in the number of new buyers, this inflation reading will offer another confidence boost. This should subsequently see lower rates being offered to those looking to remortgage or buy their first home.”

Adam Oldfield, Chief Revenue Officer at Phoebus Software, says: “At 3.4% February inflation was the lowest it had been since 2021, and 0.2% lower than the 3.6% than economists had forecast. Today’s figure of 3.2% for March is another drop in the right direction.

“Unfortunately, though, with inflation high on both sides of The Atlantic, and swap rates behaving unpredictably, 3.2% is still not anywhere near where it needs to be to inspire a Bank of England cut in interest rates come 9th May.”

Paresh Raja, CEO of Market Financial Solutions, says: “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’,” he says.

“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.”

Mark Harris, CEO at SPF Private Clients, says: “With inflation continuing to move towards the Bank of England’s 2% target, it’s time for the rate setters to be bold and start cutting interest rates.

“There is a sense that buyers and sellers are holding fire waiting for that first rate reduction, and when it comes, it will give the housing market a welcome boost.

“Falling interest rates have a knock-on effect on swap rates, which underpin the pricing of fixed-rate mortgages. Five-year swap rates rose this morning to 4.21% from 4.14% yesterday, and until they are consistently falling, lenders are unlikely to reduce mortgage rates further.”

Amy Reynolds, Head of Sales at Richmond estate agency Antony Roberts, says: “There has been a noticeable increase in second viewings and offers coming in since the Easter bank holiday.

“Conversations around rate rises are not as prevalent as they were last year. Plenty of buyers are delaying making their move in the hope of better mortgage terms in the future, which is understandable but risky as any drop in base rate could push house prices higher,” she says.

“However, a counter to that may be that some sellers are also delaying until the first rate cut before coming to market, which may balance supply and demand and steady prices.

“If inflation continues to fall, albeit slowly, a rate reduction is needed to ensure the delay is not viewed as a sign of economic uncertainty or weakness. This would dampen overall market sentiment, affecting both buyers and sellers.”

Matt Smith, Rightmove’s Mortgage expert, says: ‘It’s positive to see inflation continuing to fall this morning, albeit not by quite as much as expected, as the blocks continue to build towards the anticipated first base rate cut later this year.

“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.”