The Consumer Prices Index (CPI) fell in April from 3.3% in March largely because of the drop in the energy price cap which has reduced consumers’ gas and electricity bills.
However, with events in Middle East still uncertain and many other goods – including petrol, water bills, broadband and milk – rising in price, the short-term outlook for consumer finances may not be so positive.
Experts say the fact inflation has eased means the Bank of England is less likely now to raise interest rates in June. However, the likelihood rates will be cut is also slim.
Craig Rickman, of interactive investor, said the fall in inflation will come as a ‘brief relief’ to households but urged people not to ‘take their eye off the ball’ with inflation still above the 2% target and energy bills set to rise again in the summer.
He added: “Borrowers either remortgaging or buying a home for the first time have seen mortgage rates rise sharply in response to the conflict, choking their finances in the process.
“The combination of cooling inflation and a weakening jobs market should ease the prospect of an interest rate hike when the Monetary Policy Committee next meets on 18 June. Unless something dramatic changes between now and then, policymakers are likely to continue to keep things steady.”
How does the news impact mortgage borrowers?
Mortgage brokers are also urging borrowers not to get complacent over today’s lower inflation figures.
Whilst, typically, the Bank of England is more likely to keep interest rates lower when inflation is down, there is still much uncertainty – not just from the war in the Middle East – which could impact future decisions.
Indeed, rates soared during the peak of the crisis and whilst they have inched down again they still remain higher than in February, before the conflict began.
David Hollingworth, associate director at L&C Mortgages said today’s figures may help improve the outlook a little but mortgage borrowers cannot afford to relax.
“The ongoing forecast is likely to include base rate increases and borrowers can’t bank on more significant drops in mortgage rates,” he continued.
“Borrowers are likely to face a bumpy ride and those coming to the end of an existing mortgage should look to secure a new rate a few months in advance of the end of their current deal. That will lock a new rate in but still provide the flexibility to keep it under review until the point of completion.”