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Inflation returns to 4-year low: "The pressure is now on Threadneedle Street to cut the base rate in November"

Journalist: John Choong (Head of Markets and Research), Newspage

ended 16. October 2024

The Bank of England, much like the Government, will be delighted as headline inflation has dropped back below its target range. According to the Office for National Statistics, headline inflation fell to 1.7% in September, from 2.2% in August, comfortably clearing consensus of 1.9%. On a month-on-month basis, the headline rate declined to 0.0% from 0.3%.

Meanwhile, core inflation fell back to 3.2%, having seen its first jump in over a year last month, from 3.6%. Consensus estimates were for 3.4%. The month-on-month rate was also cooler than anticipated, at 0.1% from 0.4%. Services inflation also pared back after a shock jump in the previous month, to 4.9% from 5.6%, smashing consensus estimates of 5.4%. Experts have said this means another base rate cut in November is as good as “baked in”, while another the cut before Christmas is also a possibility. This will be good news for mortgage borrowers and the broader property market.

Newspage asked experts for their thoughts on what this spells for the rate cutting outlook, how it could impact markets and the £, and what it could mean for mortgages. Their views are below.

21 responses from the Newspage community

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Chris Barry
Director at Thomas Legal
Number 10 will be rolling out the bunting and marching band as they single-handedly managed to bring inflation below the 2% target. The MPC will no doubt reduce interest rates by 25bps in November and are now more likely to repeat the reduction in December. Whilst this will be very welcome news for borrowers, it’s too late for some and this is yet another example of the MPC taking a reactive action rather than a proactive approach.
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Adam Stiles
Managing Director at Helix Financial Partners
This unexpectedly sharper drop in inflation puts more pressure on the Bank of England to cut the Base Rate in November. However, let's see how the markets react after the Budget's plaster is ripped off.
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Darryl Dhoffer
Founder at The Mortgage Geezer
The pressure is now on Threadneedle Street to cut the base rate in November. Following headline inflation coming in a lot lower than expected, at 1.7%, all bets are off and another rate cut in 2024 is looking odds-on. With oil prices tumbling and wage growth slowing, the memo from the markets is currently being sent to the Bank of England to deliver another cut. That will help borrowers around the UK after a turbulent fortnight of rising mortgage rates.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Given this latest inflation print we should still be due a 0.25% cut on 7th November and we may get a similar Christmas bonus in December. We should continue to see base rate reductions in the first quarter of 2025, which will be welcome relief for borrowers given the rollercoaster of the past two years.
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Ben Perks
Managing Director at Orchard Financial Advisers
We have just smashed through the 2% inflation blockade and now all eyes turn to the Bank of England who are surely left with little choice but to cut the base rate next month. Borrowers are desperate and so the Monetary Policy Committee must act now.
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Michelle Lawson
Director at Lawson Financial
Wednesday's below expectation inflation figures have pretty much secured an end-of-year borrower bonanza. Another base rate cut in November now looks baked in but this below consensus print has also improved the odds of a second Christmas special rate cut, too.
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David Belle
Founder and Trader at Fink Money
Risks are firmly to the upside here for both the Bank of England and Keir Starmer. Going into the winter, we haven't yet seen the higher energy price cap feed through to higher household services. This is likely going to mean headline, which comprises of the more volatile food and energy elements, changes as well.

Given that inflation expectations in the US beat consensus on Tuesday, with the actual number hitting 3% for perceived inflation, this could feed through to the UK if there is potential for the US to export its heightened inflation view.

However, energy prices this winter are what matters for the Bank of England. And although they might not make policy on the basis of headline inflation alone, it of course feeds through to other aspects of the inflation ecosystem, given that energy has an immediate impact on almost 40% of the CPI basket.
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Craig Fish
Director at Lodestone
This news should and will be celebrated with a certain rate cut of 25 basis points in November, and very likely another in December though there are still inflationary pressures sitting on the sidelines, so we are not ot of the woods yet. It will bring relief to those people who have a tracker mortgage as their bravery finally starts to pay off though Its not such plain sailing for fixed rates as events worldwide have much more of an impact on those, but they should at least level off now before commencing a steady decline. The time for excuses is now over and the decision makers in Threadneedle Street need to finally do the right thing and bring the misery of high rates to an end.
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Emma Jones
Managing Director at Whenthebanksaysno.co.uk
What we all want for Christmas is some further rate cuts from the Bank of England and, if true to their word, we will see this at the next meeting. It's very positive news to see inflation coming down and could be a real boost to borrowers.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
What a quandary for the Bank of England. On the one hand today’s inflation figures support further interest rate cuts, but on the other the spectre of the forthcoming Autumn budget will almost certainly see inflation go back up. Of course they will know the budget details in time for the meeting on 7th November but the scale of its impact won’t be fully known at that point. I would expect a 0.25% reduction from Threadneedle Street in November which should see a busy end to the year for the property market.
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Dariusz Karpowicz
Director at Albion Financial Advice
The dramatic fall in UK inflation to 1.7% marks a significant turning point, dropping below the Bank of England's 2% target for the first time in four years. This substantial decline, coupled with core inflation easing to 3.2% and services inflation retreating to 4.9%, signals a robust disinflationary trend. These figures substantially strengthen the case for the Bank of England to initiate interest rate cuts earlier than previously anticipated. Financial markets are likely to respond positively, though we might see some temporary sterling weakness as rate cut expectations are adjusted forward. The implications for the mortgage market are particularly encouraging. We're already witnessing a downward trend in mortgage rates, and this latest inflation data should accelerate this movement. Lenders are likely to become increasingly competitive as their funding costs decrease, potentially marking the end of the recent high-interest rate cycle.
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Rohit Kohli
Director at The Mortgage Stop
This morning's surprise fall in inflation is the news borrowers have been waiting for. With CPIH dropping to 2.6% from 3.1% and CPI down to 1.7% from 2.2%, mortgage borrowers might soon feel the benefits. While there are still some headwinds in the data such as services inflation and rising energy costs still to flow through, as long as the Chancellor doesn't trigger a Kwarsi/Truss style reaction to her Budget on October 30th then this morning's data should all but guarantee that the Bank of England make another cut when they meet in November given that their headline target of 2% has been crushed.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit Newsletter
The UK's inflation rate has plummeted below the Bank of England's 2% target for the first time since 2021, marking a significant milestone in the country's economic recovery. However, as prices cool, the heat is on for policymakers to make their next crucial move, with all eyes on the MPC’s decision next month. However, while headline inflation appears tamed, the inflation genie isn't fully back in the bottle, as the elevated core and services measures could give the BoE pause for thought. The persistence of inflation in the services sector is particularly noteworthy, as it often reflects wage pressures, which can be more challenging to bring down. The latest inflation figures present a complex picture for the Bank of England, with the stubbornly high core and services inflation rates necessitating a more cautious stance. As the UK celebrates its inflation rate dropping below the 2% target, the question remains whether this is a true victory or merely a deceptive false dawn.
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Justin Moy
Managing Director at EHF Mortgages
Significantly undercutting the consensus, the UK inflation figures just show that the country is ready for a base rate cut. The important core inflation has also fallen below expectations, which is typically the excuse the Bank of England give for the recent lack of rate cuts, so we have little excuse to implement a much-needed 0.25% improvement, perhaps even a christmas present of 0.5% in December.
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Harps Garcha
Director at Brooklyns Financial
With inflation now falling below the 2% mark, it’s a welcome break from the constant “doom and gloom.” Many are wondering if this will lead to at least one base rate cut, or even two. However, it might not be that straightforward, as the decision could heavily depend on the upcoming Budget as the amount need to be raised has just increased to £40bn.
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Hannah Bashford
Director at Model Financial Solutions
This is fantastic news for the base rate trajectory. With inflation now below the 2% target, we can all but guarantee a base rate reduction in November, which should be very welcome news for borrowers. We continue on the rollercoaster of rates for the foreseeable future.
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Graham Wells
Founder and Financial Coach at GroWiser Financial Coaching
It's tempting to jump on the reduction of inflation as a good news story as it could reinforce signals from the Bank of England that interest rate cuts are on the way. But given that any changes to interest rates take months to have an effect on the economy, you can't help but wonder why the Monetary Policy Committee seem unable to be more proactive. Still, businesses and mortgage holders will be feeling optimistic about lower borrowing costs, but could the effect of this be cancelled out by increases to tax in the forthcoming Budget? When it comes to personal financial planning, there's little to be gained from speculation, so let's just see how things take shape. It's alway best to think about your money holistically, ignore political posturing and to make decisions based upon known facts.
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Rob Gill
Managing Director at Altura Mortgage Finance
A significant fall below market expectations and well below the Bank of England’s inflation target of 2%. A base rate cut next month now seems a certainty and mortgage rates are likely to fall in anticipation.
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Graham Cox
Director at Bridging Hub
These excellent inflation figures surely give the green light for a further base rate cut on November 7th. Whilst there is still huge geopolitical uncertainty in the Middle East, Ukraine and the USA, the truth is the UK economy is limping along, with growth prospects weighed down by massive debts and a lack of investment. We need several base rate cuts in quick order.
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Iain Swatton
Director at Exemplar Financial Services
Inflation falling to a four-year low and dropping below the Bank of England’s target is an unexpected development, especially with inflationary pressures still looming. While this sets the stage for a likely base rate cut in November, the bigger question is whether we’ll see further cuts before the year’s end. Homebuyers will be hoping this shift feeds positively into the mortgage market, where recent rate reductions have stalled, with some lenders even raising rates again. Ideally, this news will maintain the recent positivity in the market and offer a sense of stability for those looking to buy. However, there’s still uncertainty, and the BOE’s next steps will be key in shaping the landscape ahead.
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Kim McGinley
Director & Specialist Broker at VIBE Finance
The return of inflation to a four-year low is a breath of fresh air. We’ve been dealing with a lot of doom and gloom recently, especially with the Budget looming, so the possibility of a cut to the base rate in November is incredibly welcome news. As brokers, we’re constantly navigating a tricky market and a base rate reduction would provide that much needed boost for homeowners and buyers alike. It’s a step towards restoring confidence and giving everyone a bit of breathing room. Here’s hoping we see that rate cut soon – it’s definitely the positive shift we all need right now.