UK inflation dropped to 2.8% in April, down from 3.3% in March, according to the Office for National Statistics, a larger decline than most economists had forecast. The fall has increased market expectations that the Bank of England could reduce the base rate later this year, though rising oil prices and renewed energy cost pressures present ongoing concerns.
The decline was primarily driven by lower gas and electricity bills following April’s reduction in the Ofgem energy price cap. Food inflation also eased, while package holiday prices fell compared with a year earlier. Core inflation, which excludes volatile items such as food and energy, dropped to 2.5%.
Labour market pressures
The inflation data comes as labour market figures released this week show the UK shed approximately 100,000 payroll jobs in April. Regular pay growth also slowed, though at a slower pace than the Bank of England would prefer. The combination of weakening economic indicators has prompted several major lenders to adjust their pricing strategies.
Halifax, HSBC and Santander have reduced selected fixed mortgage rates in recent weeks, factoring in expectations for future borrowing costs. The moves follow similar patterns seen in other segments of the property market as economic conditions shift.
Temporary relief expected
Economists warn the drop in inflation may prove temporary. Oil and petrol prices have risen sharply since the conflict in the Middle East intensified, and the energy price cap is expected to increase again in July. Some analysts predict inflation could climb back towards 4% later this year.
Nathan Emerson, chief executive of Propertymark, said the figures remain some distance from the Bank of England’s target rate of 2%. “It remains important to consider continued overall uncertainty and unrest globally, and the potential worries and anxieties brought directly into the homes of many consumers regarding their outgoings,” he said.
Mark Harris, chief executive of mortgage broker SPF Private Clients, noted that while further interest rate cuts seem unlikely for now, the need to increase them may have reduced, particularly given the weaker economy and rising unemployment. “This will come as a relief for borrowers already grappling with higher living costs,” he said.
Market implications
Ben Thompson, director of home moving strategy at Mortgage Advice Bureau, said research shows 41% of prospective buyers are currently waiting for a sign before making their next move, highlighting how closely housing sentiment is linked to the wider economic picture. Nearly a third of prospective buyers admit they don’t fully understand the homebuying process, while 73% are unaware of high loan-to-value mortgage options.
Ben Allkins, head of mortgages and protection at Just Mortgages, said the impact on mortgage rates and broker workloads has been well-documented. “Across employed and self-employed parts of our business, we have seen clients getting on with the task at hand, which in many cases has meant pushing on with their remortgage,” he said.
Samuel Fuller, director of Financial Markets Online, said there is sufficient upside surprise in the data for the Bank of England to hold off on any immediate increase in interest rates. Fuel price inflation remains elevated despite the overall decline in headline figures.
The Bank of England’s next base rate decision is scheduled for the coming weeks, with opinion split on the outcome. The central bank has maintained its 2% inflation target, though geopolitical tensions and energy market volatility continue to complicate the outlook for monetary policy and the broader property market.