UK inflation held steady at 3.4% in the 12 months to May, according to the latest Office for National Statistics data.
The largest downward contribution to the monthly change came from transport; the largest, partially offsetting, upward contributions came from food, and furniture and household goods.
Last week, economists predicted the Bank of England will hold rates at 4.25% when the Monetary Policy Committee meets tomorrow.
The rate-setting panel cut the base rate by 25 basis points at their last meeting in May, but most economists are predicting there will be a pause before any further reductions.
Canada Life Asset Management investment director for liquidity Steve Matthews said: “We expect the Bank of England to hold rates steady this month. Inflation remains persistent, employment data is stable, and GDP prints have been benign – suggesting no immediate need for further cuts.”
With the rate of inflation still above the Bank of England’s target, L&C Mortgages associate director David Hollingworth says a cut tomorrow “would be seen as a shock”.
Hollingworth comments: “Slow and steady is likely to be the message once again despite the concerns over a contraction in the economy.”
“Mortgage rates have been harder to call in recent weeks. After a period of fixed rate increases there’s now a more mixed move in rates with some lenders cutting deals again slightly, as markets find their level.”
“Overall, it looks as though fixed rates may bobble up and down without any significant trend or shift either way. That said there’s clearly a great deal of uncertainty as global events unfold. Borrowers would be better to focus on getting the best available rates and keeping under review, rather than second guess the next move in interest rates.”
Meanwhile, Chetwood Bank chief executive officer Paul Noble suggests: “Whatever the Chancellor’s trying clearly isn’t working, and stubborn inflation risks further impacting consumer and market confidence.”
Noble says the MPC will be “under pressure to stay cautious tomorrow, but that hesitation adds to the ambiguity for savers. Instead, decisive action is needed”.
He adds: “If inflation isn’t settling, the base rate may stay higher for longer or even rise again if sentiment turns. That uncertainty makes sitting still a risky proposition for those looking to undo the real-term damage done to their savings in recent years.”
With inflation holding at 3.4%, Mortgage Advice Bureau deputy chief executive officer Ben Thompson explains that for those thinking about getting a mortgage it’s “crucial to look at the broader picture”.
Thompson says: “We’re seeing more innovative mortgage products and increasingly flexible lending criteria becoming widely available. Plus, interest rates are significantly lower than they were this time last year.”
“All eyes remain on developments across the pond, which will likely continue influencing swap rates and inflation throughout the summer. Despite this, lenders are still very much keen to lend, making it an extremely positive market for borrowers to take that first, or next, step on the ladder.”
