Inflation falls to 2% target: "This is the day we have all been waiting for"

At long last, UK inflation has reached the 2% target, giving hope to borrowers that a rate cut from the Bank of England is now very close. That will bring much needed relief and optimism to households, mortgage holders and businesses alike. The only potential stick in the spokes is wage growth, which continues to outpace inflation, but the overall outlook is now brighter. We may not get a rate cut tomorrow as the Bank of England will want to remain impartial ahead of the polls but August is looking very likely.

As expected and helped by energy-related factors dropping off, inflation hits its 2% target, but the question now is what will the decision makers on Threadneedle Street do tomorrow? Following the ECB and reducing rates is the right thing to do, after all they are supposed be independent. However, remaining independent and doing the right thing are both things they struggle with, so the pain is likely to continue well into the summer. Fingers crossed that common sense prevails and the sooner the better.

Headline inflation is back to target, which will be a relief for the Bank of England and the government. They could decide to shock the market and signal their intent with a small rate cut tomorrow. However, services inflation and wage inflation both remain stubbornly high, at near 6%, and this will still be giving the central bank a headache. Goods price inflation is expected to increase again in the second half of the year as energy deflation falls out of the figures, now that it’s been 12 months since the first falls. This means the Bank may not cut rates quickly this year, let alone tomorrow. Mortgage rates may stay higher for much longer than some expect.

Obviously this is significant news for the economy. It's taken a challenging three years to work back to this Bank of England target and gives the Monetary Policy Committee all the ammuniition to start cutting rates, providing relief to mortgage borrowers in particular. There are no excuses now. Not even the General Election should get in the way of at least a 0.25% reduction.

This morning's inflation figures are a powerful milestone, with the Consumer Prices Index (CPI) hitting the Bank of England's target of 2% for the 12 months to May 2024, down from 2.3% in April. This will undoubtedly put pressure on the Bank of England to act when they meet tomorrow. The risk of inaction or even a lack of a more decisive steer on the direction of travel could lead to perceptions of the Bank being out of touch with reality. However, despite this, it is unlikely that the Bank will reduce interest rates this week. However, there is a sense of cautious optimism as we anticipate the outcomes from the Monetary Policy Committee (MPC) where it's hoped that more members will lean towards a rate cut, which would provide much-needed hope and direction to homeowners and businesses alike.

Rishi thinks he’s performed the most timely mic drop in history. Unfortunately for him and the Tory party, it’s all too little, too late. This is a good start to the morning and will no doubt carry momentum into the day where I expect to see some rate cuts show themselves from lenders to follow on from NatWest's new deals announced yesterday. Tomorrow's rate decision will likely show a pretty split decision.

Now that inflation is down to 2%, will this usher in that first base rate cut? At last, there's a strong positive shift in the economic landscape, Will swap rates now ease, taking the pressure off borrowers and releasing the immense pressure on the mortgage market? This downward trend may be the turning point, bringing renewed optimism to the market. For some time inflation figures have been a measuring stick for how the economy has been suffering and a constant source of anxiety. However, with this welcome news, could mortgage borrowers finally breathe a little easier. While the road ahead may still have its challenges, this milestone represents a significant step forward. The Bank of England and lenders need to react with some sensible rate cuts to reinvigorate the market and get the wheels firmly back on the bus.

Waiting for us to hit the 2% marker has been a lot like waiting for the British summer to arrive, only to be hit by horrendous hayfever when it did. Although those in Number 10 will be blowing their own trumpet today, we’ve arrived at 2% due to the hard work and suffering that the public and not through any great political intervention. Surely this paves the way for a reduction to base rate tomorrow. It should, but the Bank of England has a track record of being behind the curve.