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  • Writer's pictureMortgage Tree

Inflation drops back to Bank of England’s 2% target

Inflation has eased to the Bank of England’s 2% target, according to the latest data from the Office for National Statistics (ONS). This figure indicates that prices are still rising, but at the slowest pace since July 2021.

The ONS also reported that core inflation, which strips out volatile elements such as food and energy, fell to 3.5% in May.

This comes after a sustained period of high inflation, which peaked at 11.1% in October 2022, the highest level since 1981.

Despite this most analysts expect the Bank of England to hold rates at 5.25% for the seventh time in a row this week, amid concerns that inflation could tick up again during the second half of the year.


Simon Webb, managing director of capital markets and LiveMore:

“Inflation has eased to 2% in May, hitting the Bank of England’s official target for the first time since July 2021. This marks a significant improvement from the inflationary pressures of the past year.”

“Core inflation, which removes food and energy prices, was also down to 4.2% from 4.4%, and plays a key part in the Monetary Policy Committee’s interest rate decisions.”

“It will be interesting to see how this impacts the Bank of England’s decision on the base rate tomorrow. The question is will it be enough to bring it down? And if it does will this be a big win for the Conservatives? Likely it will not be enough for either outcome.”

Adam Oldfield, chief revenue officer at Phoebus:

It’s encouraging to see inflation getting back in line after one heck of a ride. Today’s continuing fall in inflation to 2% from 2.3% last month is reassuring.

“However, after last week’s flatlined ONS figures on April gross domestic product (GDP) after three months of consecutive growth I think, like many, that it will be a tough vote at tomorrow’s Monetary Policy Committee meeting on whether to drop the Bank of England (BoE) interest rate.

“I suspect as well as the GDP flatlining, the BoE will not want to be seen as a pawn in the General Election debate, so I would suggest it will likely be July or perhaps even August before we see a rate reduction.”

Ben Thompson, deputy CEO at Mortgage Advice Bureau: 

“May’s inflation drop, in other circumstances, may have prompted some positive movements in the mortgage market. But, with rate cuts largely priced in, the Fed dragging its heels and a General Election in a matter of days, the Bank of England will be reluctant to make any waves. 

“This doesn’t mean it’s a time to sit still for those aiming to get on the property ladder or with mortgage deals due to expire. Mortgage rates are unlikely to drop really significantly when the Bank of England does cut rates, so now is the time to get on the front foot, speak to a broker and get mortgage ready. There are competitive deals on the market to be taken advantage of.”

Neil Rudge, chief banking officer for commercial at Shawbrook: 

“A slowdown/continued hold in price growth is welcome news for business owners, enhancing the likelihood of a base rate cut post-election. This could stimulate growth by lowering borrowing costs, thereby providing SMEs with the comfort and confidence to advance their plans.

“Despite political uncertainty, we observe a robust demand for funding from SMEs, and we are confident this demand will strengthen as recent macroeconomic volatility gives way to stability and clarity regarding the incoming government for the next four years.”

Nathan Emerson, CEO of Propertymark:

“With inflation now back down to the levels initially targeted, Propertymark is extremely keen to see this now inspire a drop in interest rates when the Bank of England Monetary Policy Committee meet tomorrow.

“Since the start of the year, we have witnessed many hints that rates may see a cut midyear and we now want to see this all click into place, with lenders bringing a new raft of competitive mortgage at the first opportunity.”

Founder and CEO of My Community Finance, Tobias Gruber: 

“Inflation is finally under control, but uncertainty remains about the Bank of England’s base rate decision tomorrow. Savers should act now because while many savings rates are currently beating inflation, the best easy-access deals are vanishing fast. Rates are dropping as savings providers anticipate a rate cut later this year, and when one provider makes a move, others quickly follow suit.

“There are still excellent opportunities for fixed-rate savings, with some providers offering interest rates of over 5%. If you don’t need immediate access to your money, locking in a competitive fixed rate now can protect you from future base rate cuts. Just make sure you have emergency savings accessible because fixed-rate saving accounts typically don’t allow withdrawals until your term ends.”Jonathan Bone, lead mortgage adviser at

“It’s taken 35 long months for inflation to finally reach the 2% mark. This milestone should be cause for celebration for the 1.5 million homeowners who are set to remortgage this year. Typically, reaching this target would provide the Bank of England the confidence needed to cut interest rates, making mortgage borrowing more affordable. However, given the fact we’re in the middle of an election, Andrew Bailey will be hesitant to pull the trigger.

“Cutting interest rates tomorrow could embroil the Bank of England in political controversy, a scenario Bailey will be eager to avoid. Prime Minister Sunak’s decision to call an early election may have inadvertently extended the hardship for homeowners by prolonging high interest rates.

“For those needing to remortgage this year, you can consult with a mortgage broker up to six months before your current deal ends. Mortgage offers generally remain valid for three to six months, giving you the flexibility to secure a better rate when interest rates likely drop later this year.”

Peter Stimson, head of product at the lender MPowered Mortgages:

“There’s a brutal irony to the timing of today’s good news. For almost three years, high inflation has prevented the Bank of England from reducing interest rates.

“Now CPI is bang on the Bank’s 2% target, the Bank’s next step would ordinarily be to start easing the interest rate pain which has made mortgages more expensive for millions of homeowners and would-be buyers.

“But it’s unlikely to do so, as the inflationary block has morphed into an electoral one.

“While the Bank is independent of Government and not part of the Civil Service, it too is in de factor purdah – and cannot be seen to influence the election.

“The members of its rate-setting committee are therefore unlikely to cut the Base Rate tomorrow, even if they wanted to.

“Not so long ago, Governments set interest rates – and were often accused of abusing this power to win votes at election time.

“A quarter of a century ago, this power was taken away from politicians and given to the Bank of England, precisely to prevent this happening.

“Then there’s the tricky matter of core inflation. Despite the welcome fall in the headline CPI figure, core inflation remains stubbornly high at 3.5%. This is well above the Bank’s target, and its rate-setters will want to see further improvement here before committing to a rate cut.

“So even though mortgage borrowers and lenders are crying out for the Base Rate to start coming down now, we are likely to have to wait until after the election – and probably until August – before relief finally comes.”

David Hollingworth, associate director at L&C Mortgages

“The fall in the rate of inflation to the Bank of England target rate of 2% is positive news.  This moves a step closer to the point when the Bank of England could feel confident enough that inflation is coming under control, opening the door to a cut to base rate.

“Today’s figures are in line with market expectation, and few are anticipating that the Bank will feel the timing is right for an interest rate cut when the MPC announces its decision tomorrow.  

“It’s been a choppy backdrop for mortgage rates in recent months with fixed rates edging higher in May as markets anticipated that base rate would remain higher for longer.  Market rates seem to have eased back again a touch in recent weeks to unwind some of the hikes.

“Today’s news is unlikely to cause a ripple as far as mortgage rates are concerned and looks unlikely to be enough to tee up any surprise move to base rate.  Consequently, mortgage borrowers hoping for an early cut in interest rates may have to wait longer than had been expected earlier in the year.    

“On the positive side, today’s figures shouldn’t destabilise mortgage rates.  Although lenders are always tweaking their rates, the market has calmed a little in recent weeks.  Future movement in rates remains uncertain and with the projected cut in base rate pushing further out, borrowers hoping for further improvement in mortgage rates face something of a waiting game.“

George Sweeney (DipFA), investing expert at personal finance comparison site

“Today’s figures mark an enormous milestone for the UK economy, with inflation finally reaching the Bank of England’s 2% target. This is the lowest that inflation has been since April 2021, and this will be a crucial element for the Bank of England’s (BoE) next decision on whether to finally make the first cut to the base rate since March 2020. 

“These figures should offer a glimmer of hope to mortgage holders whose household budgets have been squeezed over the last couple of years by crippling borrowing rates, as indicators continue to point towards an incoming base rate cut. However, if the BoE does decide to bring the base rate down in the August meeting, I don’t think it’s likely to be by much. Particularly, because the BoE has predicted a possible inflation spike up to 2.5% later this year. And, with all the hard work getting to this point, the BoE will be cautious about triggering further inflationary spikes if they appear to be overzealous.”

Nick Hale, chief executive officer at Movera:

“Inflation falling to the Bank of England’s 2% target is positive news for the housing market and for consumers. Though not everyone is convinced, this could lead to the Bank of England to hold or even lower the base rate tomorrow which has a direct impact on mortgage rates.”

“We’ve already seen mortgage rates fall this year,  and whilst they are unlikely to drop below 4% any further decrease could still make buying a property more affordable, potentially stimulating buyer activity. This would be no small relief for both new borrowers, and homeowners looking to remortgage.”

“It will also be interesting to see how this interacts with the current election events with all major parties calling for action that will impact the housing market in the coming months.”

Article In The Intermediary by Robert Fowler


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