Inflation in the UK fell to 1.7% in the year to September, its lowest level since April 2021, according to figures released by the Office for National Statistics (ONS). The drop, driven by lower airfares and petrol prices, surpassed expectations, with economists having forecast a rate of 1.9%.
This latest decline brings inflation below the Bank of England’s 2% target, fuelling speculation that the central bank may cut interest rates again next month. Financial markets have already been anticipating further reductions, with growing pressure for an additional rate cut in December as wage growth continues to slow.
Recent data showed that regular pay grew by 4.9% in the three months to July, down from 5.1% in the previous quarter. While wage growth remains above the inflation rate, it has reached its lowest point since June 2022. Analysts believe this slowdown could prompt more aggressive rate cuts from the Bank of England, with Governor Andrew Bailey hinting that further reductions may be necessary if the economic outlook aligns with current projections.
The Bank last cut interest rates in August, reducing the base rate from 5.25% to 5%. This was the first cut in over four years, and it has already led to increased activity in the housing market. Estate agents report a rise in buyer interest, and a further rate reduction could provide even more momentum for both buyers and sellers.
Nathan Emerson, CEO of Propertymark, expressed optimism about the latest inflation figures, stating that the news “will likely bring yet more positivity and confidence across the housing market.” He added that the potential for another rate cut in November could further boost the market, with lenders already offering improved mortgage deals.
A recent poll by Reuters found that nearly 80% of economists expect at least one more rate cut before the end of the year, with the Bank of England set to meet in both November and December to decide on future rate movements. Many predict that the base rate could fall to 4.5% by year’s end, potentially bringing mortgage rates down to below 3% by mid-2025.
Colby Short, CEO of GetAgent.co.uk, noted that while buyer activity has improved, the higher cost of borrowing has tempered the market. However, he is optimistic that further interest rate cuts will drive renewed confidence and lead to greater demand in the housing sector.
As inflation eases and the prospect of lower borrowing costs looms, the stage appears set for a more robust housing market in 2025. For now, all eyes are on the Bank of England’s next moves, with homeowners, buyers, and financial markets eagerly awaiting the November meeting.