The report on inflation has been released and the result of the data will have a major impact on borrowing, including home buyers and homeowners. Inflation in the UK has been a significant economic concern over the past few years, with rates reaching multi-decade highs in double digits due to factors such as supply chain disruptions and rising energy costs. However, recent data shows a surprising decline in inflation, with the Consumer Prices Index (CPI) falling to 2.5% in December 2024, down from 2.6% in November. This unexpected drop has eased some pressure on the Bank of England's Monetary Policy Committee (MPC) and raised hopes for potential interest rate cuts.

However, caution could be warranted as the 2.6% inflation rate reported in November was an increase over the previous two reports of 2.3% and 1.7%. The 1.7%, which was below the target rate set by the Bank, brought optimism that the MPC would be more aggressive in reducing the standard base interest rate. When the below target rate was followed by two increases, it quickly doused the hopes of a third rate cut in 2024.

The first cut of 2024, taking the sixteen-year high base rate of 5.25% to 5.0%, was the first time the rate had been cut since March 2020. The second majority vote by the MPC happened in November. The December MPC meeting resulted in a hold on the base rate and there was not a meeting scheduled for January. The earliest potential rate cut for 2025 is anticipated in a few weeks, coinciding with the February meeting of the MPC.

The MPC is tasked with maintaining price stability by keeping inflation close to its 2% target. When inflation is high, the MPC typically responds by raising interest rates to cool down the economy and reduce price pressures. Conversely, when inflation falls, the MPC may consider lowering interest rates to stimulate economic growth. The recent decline in inflation could influence the MPC's decisions in the coming months, as they weigh the risks of rising inflation against the need to support economic activity.

For UK borrowers, particularly homeowners considering a remortgage, the state of inflation and the MPC's decisions have significant implications. High inflation can lead to higher interest rates, which increase the cost of borrowing and make mortgage repayments more expensive. On the other hand, if the MPC decides to cut interest rates in response to falling inflation, it could create an opportunity for homeowners to secure lower mortgage rates through remortgaging.

The decision to remortgage should be carefully considered, taking into account factors such as the potential for future inflationary pressures and the overall economic outlook. While lower interest rates can reduce monthly mortgage payments, they may also lead to higher inflation in the long run, which could erode the purchasing power of savings and increase the cost of living. The slowdowns to economic recovery have created a weariness in borrowers despite optimism for several rate cuts in 2025 as homeowners are turning to fixed rate remortgage deals with five-year terms versus the previously popular two-year terms.

The recent decline in inflation in the UK has provided some relief to the MPC and raised hopes for potential interest rate cuts. This could create opportunities for homeowners considering a remortgage, but careful consideration of the broader economic context and future inflationary risks is essential. The MPC's decisions will continue to play a crucial role in shaping the economic landscape and influencing borrowing decisions for UK households.