What do the latest inflation figures mean for my mortgage? Interest rate predictions explained

For the first time in almost three years, the Consumer Price Index has hit the Bank of England’s target of 2%. And mortgage holders will be hoping that the Bank’s monetary policy committee decides to lower the base rate tomorrow (20 June).

Most financial experts however think this is unlikely, and Threadneedle Street will instead reduce the base interest rate from 5.25% in August. The Association of Mortgage Intermediaries chief executive Robert Sinclair told NationalWorld: “What we have is a headline CPI rate which gets back into target, but there’s clearly still some concerns about core inflation which is running a little higher than probably the Bank of England would want.”

Core inflation records the rate of price hikes across the UK economy for all the goods and services we consume regularly, with the exception of energy, food, alcohol and tobacco. It’s a good indicator of whether inflation is sticky, and currently is running higher than the main CPI rate. 

“We’re still seeing wage settlements running much higher than the inflation rate now, therefore I think the Bank is still going to feel cautious about making any changes,” Sinclair explained. “I think we won’t see a shift until August, but I still expect two reductions this year.”

Other economists agreed, with Suren Thiru, director at Institute of Chartered Accountants in England and Wales (ICAEW), saying: “Despite this landmark fall in inflation, concerns over both underlying price pressures and changing policy in the run-up to a General Election means a June interest rate cut is almost certainly off the table.” And Robert Wood, at Pantheon Macroeconomics, said higher services inflation could mean a rate cut is now pushed back until September.

What does this mean for my mortgage?

Sinclair said he expects an interest rate reduction between August and September, and a later one in November or December. But the broker said prospective buyers and homeowners needing to remortgage shouldn’t get too excited about substantial drops in mortgage rates if the Bank of England cuts the base rate. 

He explained: “The thing is those two base rate reductions are already priced in to swap markets, which means that the forward pricing for fixed rate mortgages is unlikely to shift very much from where it is now.”

The average two and five-year fixed mortgage rates rose to 5.93% and 5.5% respectively in early June. In January, some lenders had been offering sub 4% rates.

And Sinclair said: “I don’t expect to see fixed rates or swap rates to move significantly over the second half of this year. I think that [a price war] is less likely and I think a number of the larger lenders have probably done a fair degree of the borrowing they wanted to do next year. 

When should I remortgage?

Sinclair said that while he doesn’t foresee any significant drops in mortgage rates, they should start to “soften off towards the back end of the year”. “Then into a period when consumer demand for moving house is not normally great in November and December,” he explained. 

“It tends to be the time when people are less likely to look to move, but for those people caught in a remortgage cycle it might be beneficial for them.” And he said that unless there is a huge global shock, it’s unlikely that rates will return to below 1% as they were in the 2010s.

“I genuinely don’t expect to see base rates, unless there’s some kind of crisis, going below 3% in the foreseeable future,” he explained. “Anybody who’s hoping we’ll get back to rates starting with a one or a two will be sadly disappointed for a very long time, unless there’s some kind of global financial crisis.”

Ralph Blackburn is NationalWorld’s politics editor based in Westminster, where he gets special access to Parliament, MPs and government briefings. If you liked this article you can follow Ralph on X (Twitter) here and sign up to his free weekly newsletter Politics Uncovered, which brings you the latest analysis and gossip from Westminster every Sunday morning.