what the fall in UK CPI to 2.8% will mean for mortgages? If nothing else this will give the Chancellor one less thing to worry about as she braces for the backlash from today’s Spring Statement.
But while both the headline rate of inflation, and the more telling core rate of CPI, have eased off, they’re still higher than both the Chancellor and the Bank of England would like.
Any breather could be temporary, as April will bring an inflationary boost for households in the form of higher Council Tax bills and for businesses in the form of a surge in the cost of hiring people. April is also likely to see many firms agreeing annual pay rises, in many cases above inflation.
The inflationary shadow which has shrouded the UK economy for the past three years has lightened but not lifted. Things may get worse before they get better.
The question now is at what point might cooling inflation prompt the Bank of England to unleash its next base rate cut.
While CPI is still well above the Bank’s 2% target, economic growth is a major worry. The economy slipped into reverse in January and the OBR is today expected to slash its growth forecast for 2025, so it may take only one more month of easing inflation for the Bank to resume its rate-cutting.
At present the swap markets are pricing in two more base rate cuts for 2025, but with the economy stagnating, the Bank could be tempted to cut faster. A base rate below 4% by Christmas is possible – and this at least will be welcome news for the 1.8 million households due to remortgage this year.
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