The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.8% in the 12 months to May 2024, down from 3% in the 12 months to April.

The latest figures from the ONS also reveals that on a monthly basis, CPIH rose by 0.4% in May 2024, compared with a rise of 0.6% in May 2023.

Commenting on the data L&C Mortgages associate director David Hollingworth said the fall in the rate of inflation to the Bank of England target rate of 2% was 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.”

Hollingworth suggested the ONS data was unlikely to cause a ripple as far as mortgage rates were concerned and 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.

He added: “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.“

AJ Bell director of personal finance Laura Suter says inflation hitting target means some will be expecting a cut to interest rates at the Bank’s meeting tomorrow. However, like Hollingworth, she argues it would be very unlikely for the rate-setters to cut interest rates during an election campaign.

“The future path for inflation – and so rates – will be impacted by whoever becomes prime minister and how their fiscal policy shapes up. It’s highly likely the Bank will want to wait to see the outcome of the election and the final economic plans before making that first cut. With no meeting in July, that means all eyes are now firmly on the August MPC meeting for our first potential cut to rates.”

Movera chief executive Nick Hale takes a similar line: “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.”

MPowered Mortgages head of product Peter Stimson insisted there was 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.”