Industry experts debate what it means for the next BoE base rate decision
Coming just before the Easter break, the news that the UK inflation rate fell by more than expected to 2.6% last month may put a spring in the step of those in the mortgage industry winding down for the long weekend. It’s prompted fresh speculation about whether mortgage rates will drop further, but also what impact this will have on the Bank of England’s next decision on the base rate, in just a few weeks’ time.
The rate eased to 2.6% in March – marking a slight decline from February’s figure of 2.8%, according to new data from the Office for National Statistics (ONS). Analysts have warned that the fall may only be temporary as analysts expect it to spike again this month, when rising bills – dubbed ‘Awful April’ – take their toll. But for now, at least, the news is good, and this bodes well for the BoE’s Monetary Policy Committee meeting on May 8. So, can we expect a further base rate cut and, importantly, a new flurry of rate reductions from lenders?
Richard Campo (pictured left), head of growth at Heron Financial, admits it is very hard to gauge what this will all mean for the mortgage market. “While it is welcome news, you have to take it with a huge pinch of salt as this doesn’t include the period of huge trade tariffs from the U.S. on April 2, and also the yet to be determined impact of NI rises in the UK,” Campo told Mortgage Introducer. “When we get the figures for April next month, we will know a lot more about if that opens the door to faster rate cuts or vice versa. Moreover, trying to call what will happen with rates this year could well be a fool’s errand. Due to our friends in America, you can wake up on any given day and its either Armageddon or business as usual.”
He continued: “The Bank of England are well aware of all of this and from the minutes of the last few MPC meetings they do expect inflation to top out around 3.7% later this year before starting to decrease from there. Will inflation stay in that range which means rate cuts will happen as planned? That would indicate two more cuts this year. Does Trump push on with this trade war with China, which will really hurt global growth and potentially decrease inflation in the UK due to cheap products being dumped on us? If so, we may get more cuts.”
Due to all this uncertainty many clients are opting for the security of a short-term fixed rate, Campo acknowledges. “With some lenders offering a two-year fixed rate at sub 4% that is looking a very good bet,” he said. “However, braver clients should seriously consider a tracker rate at present as that may work out cheaper in the long run, or give the option to fix later this year or next, if fixed rates have dropped.”
For Nicholas Mendes (pictured centre), head of growth at London broker John Charcol, the slower pace of price growth further strengthens the likelihood that the Bank will consider cutting interest rates in May. “Whether that move is 0.25 or even 0.5 percentage points remains to be seen, though the latter still seems unlikely,” Mendes reasoned. “However, any relief may prove short lived. The Bank expects inflation to rise again in April, potentially reaching 3.6%, driven by higher energy costs and seasonal pricing shifts. International factors are also adding complexity. While tariffs typically push prices up, they can also dampen global demand, which might help to contain inflation in the UK over the medium term. Ultimately, the Bank’s next move will depend on whether this latest dip in inflation is seen as the beginning of a longer-term trend or merely a temporary pause.”
For mortgage borrowers, the latest inflation figure is certainly a positive development, Mendes notes, but it is too early to say whether the tide has turned. “At the start of the year, markets had anticipated two Bank of England rate cuts in 2025,” he said. “That view was based on encouraging inflation trends and signs that the economy was beginning to cool. With energy prices stabilising and wage growth easing, there was a general sense that the Bank could begin to ease policy gradually without reigniting inflationary pressures. That outlook has since become more complicated. The recent escalation in US trade tensions has unsettled markets and introduced fresh risks. As a result, expectations have shifted. Markets are now pricing in up to four cuts this year, which would bring the base rate down to around 3.5%.” He added: “Questions around job security and the wider economic outlook are tempering borrower confidence. Sentiment is improving, but it is far from settled. For now, the environment is improving but stability is still a work in progress.”
Read more: Can the mortgage industry rise again?
How difficult a task awaits the Bank of England’s Monetary Policy Committee?
Bob Singh (pictured right), specialist mortgage adviser at Chess Mortgages, believes the fall in inflation gives rise to the prospect of a base rate cut in May, but observes that the Bank faces a challenging balancing act in its decision. “We have seen many lenders cutting rates over the last fortnight, and today’s news is likely to spur other lender to follow suit,” Singh predicted. “Once the higher cost of living is factored in for April, inflation is however expected to rise again which may slow down further cuts expected later in Q3 and Q4. It will be a difficult time for the Monetary Policy Committee in trying to balance rates and inflation.”
According to John Phillips, CEO of Just Mortgages and Spicerhaart estate agents, the fall in inflation is ‘a bit of a hollow victory’, given that the new financial year brings new tax changes and price hikes which will, he suggests, undoubtedly add fuel to the inflationary fire, “What is good news is that a positive reading on inflation is likely to help influence the MPC’s decision next month on interest rates, as will the need to stimulate growth amid the threat of economic uncertainty,” Phillips said. “What we do know is consumers are the winners of increasing competition among lenders.”
Meanwhile, Mark Harris, chief executive of mortgage broker SPF Private Clients, considers that the fall in inflation will make it easier for the Bank of England to cut rates again sooner rather than later. "Another rate reduction would help boost affordability, and would be particularly timely now that the Stamp Duty concession has ended,” Harris said.
Finally, Ben Thompson, deputy CEO of Mortgage Advice Bureau, envisages that the latest inflation update reading might be the last good one for a few months. “Trying to work out where that all may or may not go is like fumbling through a thick fog blindfolded,” Thompson said. “So let’s enjoy it while we can.”
