Landlords could have to wait slightly longer for the pressure on mortgage rates to ease after the annual rate of inflation hit 4% last month.

The consumer price inflation (CPI) increased from a two-year low of 3.9% in November, reducing the likelihood that borrowing costs will come down in the coming months, prompted by a hoped-for early Bank of England rate cut. The jump was largely the result of increases in the cost of tobacco – after chancellor Jeremy Hunt announced higher duty in the autumn statement – and alcohol.

Expectations

The Bank raised interest rates 14 times between December 2021 and August 2023, taking rates to a 15-year high of 5.25%. Financial markets reacted to the figures by paring back expectations for a first cut to come in May, with June now seen as more likely.

Julian Jessop, economics fellow at the free market Institute of Economic Affairs, believes inflation is still likely to fall to the 2% target in April and that the markets will continue to price in large rate cuts later in the year. “Inflation is still lower than the Bank of England’s forecasts, which predicted an average rate of 4.6% in 2023 Q4 and 4.4% in 2024 Q1,” he says.

Drop rapidly

“Inflation will probably also be around 4% in January, but the numbers should then drop rapidly again, especially in April when the Ofgem cap on domestic energy bills will be lowered sharply.

“There will be six MPC meetings between May and December, leaving plenty of time for the Bank to cut rates from the current 5.25% - perhaps to around 4% by the end of the year.”