City economists are now near-unanimous in expecting the Bank of England to cut interest rates from 4.25% to 4% at its June meeting, after March inflation fell to 2.1% — its lowest level in four years and below the Bank's own forecast of 2.3%.
The data, published by the Office for National Statistics on Wednesday, showed headline CPI falling from 2.5% in February, driven by lower energy prices following the April Ofgem cap reduction and easing food price inflation.
Markets now price an 85% probability of a June cut, up from 60% before the release. Two-year gilt yields fell 8 basis points on the news; sterling slipped 0.3% against the dollar.
What It Means for Mortgage Holders
For the estimated 1.8 million households whose fixed-rate mortgage deals expire in the second half of 2026, a June cut would represent welcome news. Lenders typically begin reducing fixed rates in anticipation of Bank action, meaning best-buy two-year fixed rates — currently averaging 4.5% — could fall toward 4.2% or below over the summer.
Variable rate mortgage holders would see an immediate reduction in their monthly payments following a cut.
Services Inflation: The Remaining Concern
The Bank's Monetary Policy Committee has consistently pointed to services inflation — which remained at 3.9% in March — as the key indicator to watch. While the fall from February's 4.1% is encouraging, it remains well above the level consistent with 2% overall inflation in the medium term.
Governor Andrew Bailey said the data was "encouraging" but noted that the committee "needed to be confident the disinflation was sustained." The minutes of the May MPC meeting, published alongside the rate decision, showed the three members who voted for an immediate cut growing more confident in their position.
