Low inflation could result in reduced mortgage rates


The markets have predicted that the BoE would not make any major movements until after the general election and will vote to keep the base rate at 5.25%

The inflation rate dropping to the Bank of England’s 2% target in May could result in lower mortgage pricing later this year, according to Rightmove.

The figures published today showed that the CPI measure of inflation was finally under control and at its lowest level since July 2021.

The BoE’s Monetary Policy Committee will publish the minutes of this month’s meeting tomorrow, where it will disclose what the base rate has been set at.

The markets have predicted that the BoE would not make any major movements until after the general election and will vote to keep the base rate at 5.25%.

Matt Smith, mortgage expert at Rightmove, said: Hopefully today’s inflation drop is the first step on the journey towards reduced mortgage rates in the second half of the year.

Market expectations are still that the first BoE rate cut is more likely to be later in the summer rather than tomorrow, but at least today’s news will keep us on course rather than throwing a curveball, Smith added.

Peter Stimson, head of product at MPowered Mortgages, said the BoE was unlikely to reduce the base rate, “as the inflationary block has morphed into an electoral one”.

He said: While the bank is independent of government and not part of the civil service, it too is in de factor purdah – and cannot be seen to influence the election.

The members of its rate-setting committee are therefore not likely to trim the base rate tomorrow, even if they wanted to, Stimson added.

Not so long ago, governments set interest rates – and were often accused of abusing this power to win votes at election time, he said.

So even though mortgage borrowers and lenders are crying out for the base rate to start coming down now, we are likely to have to wait until after the election – and probably until August – before relief finally comes, he said.

Adam Oldfield, chief revenue officer at Phoebus, said flat GDP growth after months of increases could also make the Monetary Policy Committee hold off from lowering the base rate.

He added: After last week’s flatlined ONS figures on April gross domestic product after three months of successive growth, I think, like many, that it will be a tough vote at tomorrow’s MPC meeting on whether to lower the BoE interest rate.

I suspect as well as the gross domestic product flatlining, the Bank of England will not want to be seen as a pawn in the general election debate, so I would suggest it will likely be July or perhaps even August before we see a rate cut, he said.

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