Inflation: Was this priced in by lenders?

Today’s 2.9% inflation print was largely priced in by lenders, so on its own it should not trigger a full-scale mortgage rate reversal. The problem is not the number, it is the direction of travel. The Middle East conflict is now feeding through into energy costs, and that puts markets back in the danger zone. If investors start to believe inflation is sticky again, recent rate cuts could pause very quickly and some lenders may edge prices back up. We are on a precipice: if energy prices settle, the mortgage market can keep drifting lower; if they spike again, borrowers could see the window for cheaper deals slam shut.

Largely, yes. Lenders don't wait for the official figure, they price off swap rates, and swaps had already drifted up in anticipation of inflation heading this way. So a 2.9% print that was broadly expected shouldn't move fixed rates much on its own. The small cuts we saw from Nationwide and Halifax were lenders competing for business, not a bet that inflation was beaten, so they were never really hanging on today's number. What matters more than the headline is the direction of travel. This was driven by gas, and if energy keeps feeding through with the Middle East still unsettled, swaps can jump quickly, and that's what would pause or reverse the recent cuts. Realistically I'd expect more of the see-sawing we've had for weeks rather than a clean move either way. If swaps push up on the energy story in the next few days, don't be surprised to see one or two lenders trim those reductions back. Today's figure itself, though, is largely in the price already.

Today’s 2.9% inflation figure was largely expected, so on its own I wouldn’t expect it to have a significant impact on mortgage rates. The bigger concern is what happens next. With tensions in the Middle East putting pressure on energy and fuel costs, inflation could prove more stubborn than hoped. If that feeds through into higher swap rates, we could see some lenders pause or reverse recent mortgage rate cuts. For now, I’d expect continued volatility rather than a dramatic move in either direction

Much of today’s inflation rise was already expected, so lenders won’t be waking up to a completely new picture. The bigger question is what markets expect inflation to do next, because that feeds into the funding costs behind fixed mortgage rates. One month’s figure shouldn’t derail recent reductions on its own, but if inflation continues climbing, lenders may have less room to keep cutting.

Today’s inflation rise will not have come as a complete surprise to lenders, as markets were already expecting CPI to increase. However, the 2.9% figure is slightly above the Bank of England’s latest forecast, so it may make lenders a little more cautious about further rate reductions.

Fixed mortgage pricing is driven more directly by swap rates and lenders’ funding costs than by one inflation reading. Therefore, I would not expect widespread increases purely because of today’s announcement. However, if inflation expectations and swap rates rise, some lenders may pause recent reductions or make small upward adjustments.

The reassuring detail is that core inflation remained stable and services inflation eased. The headline figure matters, but lenders will be looking beyond it.

This may take some momentum out of the mortgage price war, but it does not necessarily mean recent rate cuts will immediately go into reverse.