The Office for National Statistics (ONS) has confirmed that UK inflation has slowed, with a drop to 2.6% in the year to March. This inflation figure was lower than expected, with predictions estimating a fall to 2.7% from the previous rate of 2.8% in the year to February. This is the second month in a row that inflation has cooled after a sharp rise to 3% in the year to January.
What has caused UK inflation to ease?
The fall in UK inflation is primarily attributed to a drop in petrol prices. The average price of petrol fell by 1.6p per litre between February and March, ending at 137.5p per litre. Recreation and culture also contributed to the drop while the rising price of clothing offset these factors.
Both core and services inflation slowed. Core inflation, which does not include volatile factors like food and energy, dropped in March to 3.4% from February’s 3.5%. Services inflation dropped to 4.7% from 5%.
Will the fall in inflation continue?
While the latest UK inflation rate is encouraging, it’s predicted to increase sharply in April, with a forecast of 3.6% by the Bank of England. This is due to an increase in energy bills as well as business costs, such as the higher National Insurance payments that have come into effect.
How will mortgage rates be affected by the latest inflation figure?
Despite the anticipated increase in inflation in April, the current lower-than-expected figure of 2.6% has strengthened views that a cut to interest rates will take place in May. The Monetary Policy Committee’s (MPC) next review of the base rate, which currently stands at 4.5%, is on 8th May. Economists have speculated that the MPC will vote to drop the rate by 0.25 points to 4.25%.
The anticipated cut to interest rates is good news if you’re looking to take out a new mortgage or remortgage. Lenders typically price market changes into their rates in advance and some fixed-rate deals have already started to come down in price. As a spike is expected in inflation in April, however, it’s unlikely that lenders will reduce their rates by much.
If your current mortgage deal is due to expire in the next few months, it’s a good idea to look around for a new one now. You can lock in the best rate now in case they go back up while having peace of mind that you can change it again before your current deal ends if you find a better rate in the meantime.
Get in touch for expert advice on mortgage rates
Our mortgage brokers are here to ensure that you get the best deal to suit your circumstances and needs. Whether you’re a first-time buyer, an investor looking to expand your portfolio or you want to remortgage, just give us a call on 01322 907 000. With an unrestricted range of first and second charge lenders, including access to exclusive broker-only deals, we can compare lenders’ rates and terms to find the best solution for your mortgage goals.