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CPI inflation falls to 2.3% – is a base rate cut on the horizon?

Bank of England

The inflation rate has fallen to 2.3% in the year to April, down from 3.2% in March – though there are mixed messages regarding whether we’re any closer to a base rate cut.

While this is near the Bank of England’s inflation rate target of 2%, economists had expected the inflation rate to drop to 2.1%.

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “Even though inflation coming close to target is clearly highly welcome, it doesn’t automatically mean inflation has been relegated from the league of threats.

“Bank of England policymakers won’t be pulling on winning jerseys just yet. They will want to see more signs that hot wage inflation is also cooling off, before they blow the whistle on this restrictive period of play.

“It looks increasingly likely that a rate cut may still not come until August.”

The Bank of England base rate has stood at 5.25% since August 2023, following a period of rapid increases designed to curb the UK’s runaway inflation rate.

This has made affordability far trickier for the nation’s homeowners, who are in no doubt ready for the Bank to start cutting the base rate once again.

Streeter added: “It feels like this should be a healthy dose of good news, but anyone with a mortgage will be sickened to hear it’s not as good as it seems.

“For anyone on a variable rate mortgage, nothing will change until we get rate cuts, and the timing of those still hangs in the balance.

“We can’t completely rule out a June rate cut, but it looks distinctly like there are still a few months before your mortgage bills drop.

“For those who need to remortgage in the near future, there’s no respite either. Fixed mortgage rates had been moving in the wrong direction for months.

“Moneyfacts figures show the average two-year fixed rate rose from 5.56% at the end of January to 5.93%.

“There is still hope that lower inflation will inspire some to price in an earlier cut, but we may not see any significant change in the market for a while.”

Daniel Austin, chief executive and co-founder at ASK Partners, made the opposite conclusion following the release of the CPI inflation data.

He said: “We might see an interest-rate cut as early as next month.

“This potential rate cut is a crucial development, as lower interest rates typically reduce the cost of borrowing. In anticipation of this move, we have already seen major high street lenders make cuts to mortgage rates.”

Austin’s view appears to be an outlier, as investors reckon there’s just an 18% chance of a base rate cut in June, down from 50% on Tuesday.