The UK inflation rate is anticipated to decrease to the Bank of England’s 2% goal in the second quarter of 2024 according to forecasts that will be released next week. While there’s a sense of optimism, a slight increase in inflation is expected in the latter half of the year.
In July, energy price figures from the previous year will cease to affect calculations as the energy price cap decreased to £2,074 last July.
Susannah Streeter, a financial expert at Hargreaves Lansdown, suggests that if inflation reaches this desirable level, there may be hopes for a rate cut as early as June. However, she cautions against premature celebration and spending, noting that the Bank of England officials need to be certain inflation will stay close to target before lowering borrowing rates. They are also wary of high pay growth, including record-setting bonuses in March, that could potentially lead to price hikes for goods and services.
The Bank of England may find it challenging to cut rates due to the slight increase in unemployment paired with more people out of the workforce due to long-term illness, limiting the available labor force. Streeter explains that they will likely look for more evidence of diminishing pressures, so an interest rate cut in August might be more probable.
The average rate for a two-year fixed mortgage has climbed from 5.56% at the end of January to 5.93% earlier this month. However, following the Bank of England’s hints at potential earlier rate cuts, rates have receded slightly.
Sarah Coles, a finance expert at Hargreaves Lansdown, indicated that the dip in inflation may continue to push fixed mortgage rates down if banks anticipate a June or August interest rate cut. However, she warns those refinancing their mortgages not to expect dramatic rate reductions. She believes rate cuts will not happen often, so mortgage payments are likely to rise significantly for those refinancing from rates below 2%. The Hargreaves Lansdown Savings & Resilience Barometer even suggests a quarter of mortgage holders might be at risk of defaulting by year’s end.
For homeowners with variable rate mortgages, rates won’t change unless actual rate cuts are implemented, and their precise timing remains uncertain. Coles suggests that those who chose variable rates at the beginning of the year, hoping for an imminent rate cut, might have to endure higher-than-expected rates a while longer.
