The latest inflation data has thrown a curveball at expectations for interest rate cuts in 2025. Annual CPI inflation rose from 2.5% in December to 3% in January, surpassing economists’ forecasts of 2.8%. This marks a significant increase from the 1.7% recorded in September, raising concerns about the future direction of mortgage rates.
What’s Driving the Increase?
Inflation had briefly dipped at the end of 2023, but the Bank of England now expects inflation to peak at 3.7% this year. A key factor behind this latest rise is core inflation, which strips out volatile elements like energy and food. It climbed from 3.2% in December to 3.7% in January, signaling that price pressures may be more persistent than previously thought.
Some experts argue that this spike is due to one-off factors, such as increases in private school fees, fuel costs, and public transport fares. However, others warn that these figures could delay any potential base rate cuts from the Bank of England.
What Does This Mean for Mortgage Rates?
Before the inflation data was released, many analysts were hopeful that the Bank of England would start cutting interest rates as early as March. However, with inflation running higher than expected, those hopes have largely faded.
Industry Reactions: No Rate Cut in March?
💬 Peter Stimson, MPowered Mortgages:
“While some argue that this inflation spike is temporary, the reality is that CPI is still well above the Bank of England’s 2% target. This makes an imminent interest rate cut highly unlikely.”
💬 Derrick Dunne, CEO of YOU Asset Management:
“The sharp rise in inflation and wages means a rate cut at the March Monetary Policy Committee (MPC) meeting now seems completely off the table. We may have to wait until the summer before seeing any meaningful reductions in borrowing costs.”
💬 Nicholas Hyett, Wealth Club:
“Core inflation is nearly twice the Bank of England’s target, leaving very little room for rate cuts anytime soon.”
For mortgage borrowers, this means that fixed-rate deals are likely to remain at current levels for longer, and those hoping for significant rate reductions this year may need to adjust their expectations.
Could Interest Rates Still Fall in 2025?
Not everyone is pessimistic. Some analysts believe that, while March is now unlikely, rate cuts could still be on the table later in the year.
💬 Rob Morgan, Charles Stanley:
“Despite rising inflation, we still expect the Bank of England to cut rates in 2024—possibly by 0.25% in the spring if economic conditions soften.”
💬 George Lagarias, Forvis Mazars:
“Inflation at 3% isn’t necessarily alarming. The Bank of England tends to focus more on ‘sticky’ inflation, such as wages, rather than temporary cost spikes in food and energy. If these pressures ease, rate cuts could still happen later this year.”
What Should Mortgage Borrowers Do Now?
🔹 If you’re on a variable or tracker mortgage, keep an eye on rate movements. With rate cuts looking less certain, consider whether fixing now could provide stability.
🔹 If you’re due to remortgage in 2025, don’t wait too long to explore your options—rates may not fall as quickly as previously expected.
🔹 First-time buyers should factor in the possibility of higher rates when planning their budgets.
📩 Need mortgage advice? Whether you’re buying, remortgaging, or considering your next move, we can help you find the best mortgage solution. Get in touch today!
This article includes insights and data sourced from Financial Reporter.
