The Consumer Price Index (CPI) fell in April from 3.3% in March, largely due to a lower energy price cap that led to lower gas and electricity bills for consumers.
However, with events in the Middle East still uncertain and prices of many other commodities rising – including gasoline, water bills, broadband and milk – the short-term outlook for consumer finances may not be so positive.
Experts say the fact that inflation is falling means the Bank of England is now unlikely to raise interest rates in June. However, the chances of interest rates being cut are also slim.
Craig Rickman, of Interactive Investment, said lower inflation would come as a “short relief” for households, but he urged people not to “take their eye off the ball” with inflation remaining above the 2% target and energy bills expected to rise again in the summer.
He added: “Borrowers remortgaging or buying a home for the first time have seen mortgage rates rise sharply in response to the conflict, suffocating their finances in the process.
“The combination of slowing inflation and a weak labor market should dampen the likelihood of a rate hike when the Monetary Policy Committee meets on June 18. Unless something radical changes between now and then, policymakers will likely continue to hold things steady.”
How does the news affect mortgage borrowers?
Mortgage brokers are also urging borrowers not to be complacent with today’s low inflation figures.
While the Bank of England is likely to keep interest rates low when inflation falls, there is still a lot of uncertainty – not just because of the war in the Middle East – which could influence future decisions.
In fact, rates rose during the height of the crisis, and although they have fallen again, they are still higher than they were in February, before the conflict began.
David Hollingsworth, Associate Director at Real estate loans He said today’s numbers may help improve the outlook a bit but mortgage borrowers cannot afford to relax.
He continued: “The current outlook is likely to include increases in base interest rates, and borrowers will not be able to count on further significant declines in mortgage rates.”
“Borrowers are likely to face a bumpy ride, and those nearing the end of their current mortgage should look to lock in a new interest rate a few months before the end of their current deal. This will lock in a new rate but will still provide flexibility to keep it under review until the point of completion.”
