The Office for National Statistics (ONS) announced that inflation fell to 2.3% for the year to April 2024. This represents a 0.9% reduction compared to March's figures when inflation stood at 3.2%. While inflation is now at its lowest level for nearly three years, it's still higher than expected. Projections suggested inflation would fall to 2.1% in April which would be closer to the Bank of England's 2% inflation target. The news makes a base rate cut in June much less likely.
April's inflation figure in context
April's inflation figure of 2.3% means that the cost of goods and services is still going up above the Bank of England's 2% inflation target. The reported inflation rate is based on the Consumer Price Index (CPI) which includes various items such as food, alcohol, housing, and transport, among others.
As the CPI is based on a methodology developed by Eurostat (statistical office of the European Union), comparisons can be drawn with other countries. Inflation in the UK for April 2024 is lower than in France (where it's 2.4%), Germany (where it's also 2.4%) and the EU as a whole, which reported an inflation figure of 2.6%.
Falling gas and energy prices were the biggest reason behind the inflation dip in April according to the ONS. This was largely as a result of the lowering of the Ofgem energy price cap. The price of electricity, gas, and other fuels fell by 27.1% in the 12 months to April 2024. This represents the largest dip on record based on figures dating back to 1989. But increases in motor fuel partly offset the fall.
Inflation predictions for May's figures
Inflation is falling, albeit slower than the Bank of England would have liked and is expected to fall again in the 12 months to May 2024. The Office for Budgetary Responsibility (OBR) predicts that we will see inflation fall below 2% by the third quarter of 2024. This is echoed by the Bank of England which believes inflation will reach 2% in the near future, but may increase to around 2.5% by the end of the year as a result of energy-related price pressures due to possible geopolitical factors. The Bank of England's Monetary Policy Committee will meet again on June 20 to set the Bank of England base rate. The news today means that markets are predicting that the base rate is likely to remain at 5.25% in June.
How will the fall in inflation affect savings rates?
Savings rates are likely to remain unchanged as the smaller-than-expected fall in inflation could mean that the Monetary Policy Committee will vote to keep the Bank of England base rate at 5.25% in June. However, further dips in inflation could see the base rate cut in August as we near the Bank of England's 2% inflation target. If you're looking to make the most of your money before any potential base rate cuts, check out our round-up of the best savings accounts in the UK. There are also still several accounts offering more than 5% interest on your savings.
How will the fall in inflation affect mortgage rates?
The Bank of England is unlikely to cut rates in June following the higher-than-expected inflation rates for April. Inflation also came in higher than expected last month which prompted several lenders to hike their mortgage rates. Major players like HSBC, NatWest, and Barclays were among those who introduced mortgage interest rate hikes.
It's therefore unlikely that we will see significant cuts in mortgage interest rates in the next few months. For those looking to buy a home, house prices have risen by approximately 1.8% in the 12 months to March 2024 with the average property in the UK now costing around £283,000.
If you're looking for mortgage deals, check out our mortgage rate comparison tool or speak to a mortgage expert* to get advice tailored to your specific needs and circumstances.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito
