Inflation holds at 4% - what does this mean for mortgages?

Last updated on 20 February 2024 by Claire Flynn

What was the UK inflation rate in January?

Last week, the UK inflation rate for January was confirmed at 4%. This is unchanged from the previous month, and came in below the market expectation, which was 4.2%.

However, wage growth in January was slightly higher than expected, rising 0.6% compared to the 0.4% increases seen in December and November.

Is the UK now in a recession?

Following the inflation announcement, official figures released on Thursday revealed that the UK had entered a recession towards the end of 2023.

The Office for National Statistics estimated that the Gross Domestic Product (GDP) fell by 0.3% between October and December, which followed a decline of 0.1% over the previous few months.

What does this mean for mortgage rates?

Given the inflation figure being lower than expected, and the news that the UK had entered a recession at the end of 2023, it's natural to wonder what the impact will be on interest rates, and whether they might fall

Recent increases in the base rate were in an effort to drive down inflation, and the Bank of England has previously lowered the base rate during period of recession in order to boost the economy.

However, Andrew Bailey, the Governor of the Bank of England has stated that the Bank of England doesn't anticipate this to be a long recession, and that there is already evidence of recovery.

And while the Bank expects inflation to fall to 2% in spring, they expect this figure to rise again by the end of the year due to fluctuating energy prices.

Although he did say that inflation didn't necessarily need to come back down to 2% for the Bank of England to consider lowering the base rate, and said that market expectations that rates would come down this year are not "unreasonable".

Essentially, there are many factors at play with regards to the Bank of England's future decisions on the base rate, including wages, service prices growth and the labour market, and their impact on inflation.

As a result, it's very difficult to predict what they will do with regards to interest rates and the impact on mortgage deals currently available.

During uncertain times in the market, it can be helpful to get expert advice from a mortgage broker who can advise what deals are available for you and your circumstances.

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