The inflation rate is expected to drop to 2% in the second quarter of 2024 in next week’s figures, finally reaching the Bank of England’s target. 

Despite this positivity, the Bank expects inflation to rise slightly in the second half of 2024.

In July, the higher energy prices of a year earlier will drop out of the figures, because the cap fell to £2,074 last July.

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: ‘’If inflation hits the sweet spot, hopes will shoot higher that a rate cut will come in June.

“But it would be wise not to reach for the bunting and go splashing the celebratory cash even if the longed for 2% target is reached.

“Bank of England policymakers have stressed that it will need confidence that inflation will consistently stay at or near the target before they start reducing borrowing costs.

“They will be mindful that pay growth remains hot, with bonuses in March the highest on record. The concern is that hefty wage bills may be passed on in the form of higher prices for goods and services.

“Unemployment may have edged up, but inactivity rates have also shifted higher, with the numbers of long-term sick limiting the pools of available labour.

“This does make the Bank of England decision to cut rates harder, and they’ll want to see more data indicating an easing of pressures, which is why an August rate cut is still, on balance, looking more likely.’’

Moneyfacts figures show the average two-year fixed rate mortgage rose from 5.56% at the end of January to 5.93% earlier this month. However, since the Bank of England emphasised that rate cuts might come sooner than some expect, they have backed off very slightly.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The fall in inflation could keep fixed mortgage rates moving in the right direction, as banks price in an interest rate cut in June or August.

“However, remortgagers shouldn’t hold their breath for major cuts, because they’re not likely to shift spectacularly. We’re still not expecting rate cuts to come thick and fast, so those remortgaging from a rate of under 2% are still set for a horrible hike in repayments. It’s why the HL Savings & Resilience Barometer shows that one in four mortgage holders are expected to be at risk of default by the end of the year.

“For anyone on a variable rate mortgage, nothing will change until we actually get rate cuts, and the timing of those still hangs in the balance. If you moved to a variable rate at the start of the year in the hope that a rate cut was around the corner, it seems like you’ll have to suffer for at least a little longer on rates that are much higher than you expected.”

Via @PropertyWire