A drop in the UK inflation rate has sparked hopes that it could prompt a cut in interest rates next month amid the threat of economic uncertainty.

The latest ONS consumer price inflation figures show inflation fell 0.2% to 2.6% in March and means prices are rising at their slowest pace since December, closer to the Bank of England’s 2% target.

Financial markets are now predicting that it will cut the Bank Rate from 4.5% to 4.25% on May 8, as mortgage costs continue to fall.

Lower borrowing costs

John Phillips, of Just Mortgages, believes a positive reading on inflation is likely to help influence the decision on interest rates, as will the need to stimulate growth amid economic uncertainty.

“With expectations of a cut, we have already seen swap rates react favourably and lenders across the board announce reductions,” he said.

“With so much in play and plenty of headwinds - both at home and abroad - it’s hard to predict with any great certainty how long this trend will continue.”

Meanwhile, Propertymark’s Nathan Emerson added: “If any decision to cut the base rate happens within the forthcoming months, this should hopefully lead to a variety of more competitive mortgage deals hitting the market and potentially inspire further market activity at a time when the economy urgently needs growth to help balance the country’s overall financial prospects.”  

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