UK inflation has fallen to 2.3% – just above the target of 2% – the lowest level in almost three years. The latest dip has sparked optimism across the property sector, with industry leaders expressing cautious hope for future interest rate cuts and improved market conditions.
Nathan Emerson, CEO of Propertymark, shared his optimism and said that it is “extremely positive” to see inflation take a further dip downwards. He continued:
“…after what has been an extremely challenging few years for many households. Over the coming months we are optimistic to see the Bank of England respond to today’s news by lowering the base rate. For many, this will be a much-welcomed relief regarding household affordability and give people a new flexibility to approach the housing market with greater confidence.”
However, the reaction to the new inflation figures has been mixed. George Sweeney, DipFA, a financial advisor at personal finance site finder.com, described today’s release as a “make or break” moment for the Bank of England’s upcoming decisions on interest rates. He added:
“Today’s figures had been described as a ‘make or break’ moment for the Bank of England’s decision to cut interest rates this summer, and unfortunately it looks as though things haven’t quite swung in the direction everyone was hoping for. Although it’s great news to see that inflation is still coming down, many had high hopes that today would be the day the Bank of England finally reaches its 2% target, and these results may therefore come as a disappointment.”
Sweeney noted the ongoing challenges faced by mortgage holders and said that many mortgage holders have “had their household budgets stretched to the extreme” over the last couple of years. He continued:
“…and over a million are due to end fixed-rate periods this year, so will have had fingers and toes crossed for a more solid signal that the Bank of England would finally begin to lower the base rate in the upcoming MPC meetings this summer. It remains to be seen whether they will be satisfied enough with these numbers to take action in June or August.”
Daniel Austin, CEO and co-founder of ASK Partners, highlighted the potential impact of a rate cut on the housing market. He said:
“This fall in inflation is significant. It takes us very near to the Bank of England’s target of 2 percent, which means 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. This proactive step will start making life somewhat easier for borrowers by lowering monthly payments and reducing overall interest expenses.”
Austin emphasised the broader positive effects of lower mortgage rates:
“Lower mortgage rates can stimulate the housing market, as they make home loans more affordable. This affordability can encourage first-time buyers and those looking to move to more expensive properties to take the plunge. With financial pressures easing, more people will feel encouraged to enter the property market again, potentially leading to an increase in property sales and a boost in related industries such as construction and home improvement.”
Reflecting on the broader economic implications, Anthony Coding from RBC Capital Markets noted that the UK CPI is “moving in the right direction (down)”. He added:
“…but today’s print was higher than expectations. UK housebuilder share prices tend to be weak following a CPI miss, but weakness may be tempered by the IMF suggesting that the UK could see three rather than two Bank Rate cuts this year. Probably a case of share price rises deferred rather than lost for the UK housebuilders, the scene is set for recovery, and we are just waiting for the lead actors to take their place on the stage and the curtain to rise.”
Tim Bannister, Rightmove’s property expert, added a cautious note, stating:
“While today’s number is a little higher than economists forecast, it is a move in the right direction. It always takes time for people to feel the benefits of lower inflation, but the downward trajectory of inflation is good for the health of the market. Affordability has been tightly squeezed over the last couple of years as rates have gone up, however, determined movers have continued to find a way. There are positive signs, including a stronger spring market than last year, however, we still have more than half the year to go, and an election to come at some point, so it’s not smooth sailing yet.”
Matt Smith, Rightmove’s mortgage expert, concluded with a hopeful perspective:
“Today’s inflation drop feels like an important milestone on the road to the first Base Rate cut. There’s been some to-ing and fro-ing over whether we’ll see a summer Base Rate cut, but today’s news will likely reinforce some of the positive words coming from the Bank of England in recent days. Mortgage rates are still higher than this time last year, but hopefully, this is the first domino to fall as we head towards lower mortgage rates in the second half of the year.”
