The Bank of England’s Monetary Policy Committee is due to make a decision on the base rate tomorrow, but with inflation yet again higher than expected, there is little chance of a rate cut.

The markets had been expecting the CPI to fall to 3.3% after April’s shock 3.4% (adjusted from 3.5%) after steep rises in the cost of food and furniture.

With the UK’s economy flagging, there is pressure on the Bank to reduce rates, but it is currently nowhere near achieving its target 2% inflation rate. And, as tensions in the Middle East push up energy costs, economists are expecting it to remain above 3% for the remainder of 2025.

Industry reacts

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “A modest uptick in property prices is to be expected given that the spring/summer market is traditionally a time when people move and the market is at its busiest. Unfortunately, another interest rate cut this week is unlikely given the inflation figures, which is disappointing as a half-point cut would stimulate growth.

Disappointing

“However, there’s still plenty of money and desire to buy in the core price ranges. Surprisingly, we are seeing a rise in first-time buyer activity even though the stamp duty holiday has ended. Many are receiving help from family and are likely being driven by the pressures in the rental market, where demand far exceeds supply and rental listings have dropped sharply as landlords exit the sector.”

Nathan Emerson, CEO of Propertymark, says: “Although not the drop that many people would have hoped for, especially as we head towards the summer months, which are traditionally the busiest periods of the year for the housing market, we now know that inflation was reported as being 0.1 per cent higher than what was actually the reality for last month, due to a data gathering error.

“All eyes will be on the Bank of England tomorrow as to whether they reduce the base rates further in response to today’s news, and the changing trends of the international economy. A drop in rates would, of course, further help stimulate the housing market, which is a vital engine of economic growth.”

When it comes to interest rates, inflation has morphed from a blip into a block.”

Peter Stimson, Director of Mortgages at the lender MPowered, says: “When it comes to interest rates, inflation has morphed from a blip into a block.

“It’s proving worryingly sticky and the crescendo of war drums in the Middle East may make things worse.

“Oil prices spiked 5% on Tuesday – reaching their highest level of 2025 so far – and there’s a danger that they will push up manufacturing and transport costs in coming months, and allow inflation to take root.

“That’s why the prospects of the Bank of England cutting its base rate again on Thursday – already very slim – have evaporated.

The swaps market – which mortgage lenders use to set the interest rates they offer on new loans – is already implying that there will be just one further cut to the base rate this year.”

“The swaps market – which mortgage lenders use to set the interest rates they offer on new loans – is already implying that there will be just one further cut to the base rate this year.

“Until last week, it wasn’t unreasonable to expect that this cut might come in August. But with inflation proving increasingly stubborn, the probability of this happening has slipped to no more than 50/50. With events in the Middle East causing increasing uncertainty, the timeline could well be shifted to later in the year.

An uncomfortable reality check

“For anyone planning to buy their first home or remortgage this summer, who’d been assuming that the only way is down for mortgage interest rates, today’s data will be an uncomfortable reality check.

“Mortgage rates may well have fallen as far as they can for now, and in the coming weeks rates may even creep up back as lenders recalibrate in response to rising swap rates.”

And John Phillips, CEO of Just Mortgages and Spicerhaart, says: “Inflation holding firm in May feels like a rebalancing after April’s figures reflected the likes of Easter air fares and many one-off factors, while higher costs at the supermarket and on other household goods in May prevented any chance of making positive progress.

“While stability is good, I still wouldn’t be planning my rate-cutting party for tomorrow’s MPC decision as the central bank is likely to keep to its careful and gradual approach. That is also true given fresh escalation in the Middle East which is likely to cause volatility – particularly when it comes to oil prices – and push costs higher.

The central bank is likely to keep to its careful and gradual approach.”

“Away from geopolitical tensions, there are some positives on the horizon for inflation – most notably the 7% cut to the energy price cap in July – which will have a positive influence on inflation. Alongside its own predictions on inflation, the central bank will be paying close attention to a rise in unemployment and an economy that is shrinking. This will no doubt play into its decision-making and will encourage some movement on the base rate. Improving swaps will create opportunities for lenders, which will be welcome for potential borrowers.

“Even so, what is encouraging for us is that clients are still coming through the door in good numbers, whether it’s for valuation requests, buyer registrations or mortgage appointments. Key to this is the proactive approach of advisers to answer the appetite in the market and demonstrate the opportunities already available for borrowers at every stage of life.”

The current view is that we’re only expecting one more base rate cut this year.”

Matt Smith, Rightmove’s mortgage expert says: “As the rate of inflation stays above 3%, the expectation is that the Bank of England is set to act cautiously. Anticipation had risen that we may be in line for multiple base rate cuts this year at the peak of tariff uncertainty, but as some of these pressures have eased, this expectation has fallen back.

“Forecasts for the rest of the year are likely to jump around a bit due to ongoing global uncertainty and changes in how the market expects things to pan out. However, the current view is that we’re only expecting one more base rate cut this year, and tomorrow’s decision by the Bank of England is likely to be a hold.

As for average mortgage rates, these have stayed pretty flat for the last few weeks as the opportunity for lenders to lower rates has reduced. Despite this, we’re seeing an active housing market at the moment, with May having been the strongest full month for agreed property sales since March 2022.”