Inflation continues to come down gradually, but a base rate cut in the summer may be less likely, according to financial analysts

Inflation fell again in March, with Consumer Price Index inflation – known as “headline inflation” – dropping to 3.2%. In February, it fell to 3.4% – down from 4% in January – and inflation is now at its lowest level for two years. While it’s certainly moving in the right direction, it is still slightly higher than economists predicted.

Inflation has been falling gradually since October 2022, when it peaked at 11.1% (a 41-year high!). The Office for National Statistics says that food prices across most items eased between February and March. Meat prices fell by 0.5% between February and March, and household item prices fell by 0.9% in the year to March.

Service inflation, which relates to hospitality and culture, fell from 6.1% to 6% in March, which is higher than the predicted forecast of 5.8%.

Downward inflation trend

The largest downward trend in inflation relates to food. Core CPI, which measures the prices of selected items but excludes the fluctuating prices of energy, food, alcohol, and tobacco, decreased to 4.7% in March from 4.8% the previous month

Financial traders now predict that the Bank of England will only make one cut to the base rate this year. Analysts say that the chances of a base rate cut in the summer are now slimmer than previously anticipated, and Forbes website says that the Bank of England may not cut the base rate until autumn at the earliest.

That said, it’s impossible to safely predict when the first base rate cut will occur. The Bank of England governor Andrew Bailey says that interest rates remain on course to fall in the coming months.

One financial spokesperson said that inflation is moving closer to the Bank of England’s 2% target, and therefore, the rate-setters should be bold and start reducing interest rates.

Rising swap rates

However, swap rates – which influence mortgage interest rates – rose slightly on Wednesday in response to predictions that a base rate cut could be delayed. This could negatively affect the price of fixed-rate mortgages.

Over the last few weeks, mortgage rates have remained broadly stable.

‘The market response on swap rates has been pretty muted in my view,’ says MB Associates Senior Mortgage Adviser Shaun De Moura. ‘We were already seeing rates creep up over the past few months and they currently stand at the level they were at last November.

Shaun adds: ‘It may sound like rates have increased off the back of this latest inflation news, but it’s worth noting that the lowest rates swap rates we’ve seen in six months were back in December. They have crept up since then off the back of a number of worldwide events.

There is reason to be positive, according to Shaun. ‘The general feeling is the news is positive, and the Bank of England is still expected to reduce the base rate this year, albeit a bit later in the year than previously anticipated.’

The next Bank of England base rate review is due on 9 May. We will keep you updated.

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