The property industry appears completely split on whether the surprise higher-than-expected hike in inflation will kill off expectations of further short-term interest rate cuts.

Inflation in the UK has jumped from 2.5% to 3% – it’s highest level in 10 months – and this defied commentators who expected at most a 2.8% figure. 

Core inflation – which excludes volatile items such as food, alcohol and tobacco – also increased to 3.7% in January from 3.2% in December along with services inflation, which rose to 5% from 4.4% in December. 

There’s no consensus on whether this will change the outlook of the Bank of England, which next meets to consider interest rate changes on March 20, by which time there will be further inflation data.

Knight Frank believes the surprise inflation hike will not change events. 

Simon Gammon, managing partner at Knight Frank Finance, says:”While the headline rate of inflation was higher than expected, many of the drivers were volatile components Bank of England policymakers feel relatively sanguine about. Consensus that the BoE will deliver another two or three rate cuts this year remains unchanged, which will maintain stability in the mortgage market. 

“Lenders with sub-4% mortgages on the market will now be expanding their market share very quickly. Margins are incredibly thin, but the biggest lenders are increasingly willing to lend against their deposit books to attract borrowers while leaving themselves less exposed to short term swings in borrowing costs.”

Nathan Emerson, chief executive of Propertymark, is also looking on the bright side and comments: “A slight rise in inflation had been widely speculated, especially with the Bank of England predicting inflation to increase to around 2.8% by the third quarter of 2025, before easing back downwards again.

 “Today’s news may throw many questions into the mix for homebuyers and sellers as they look to make their first or next move, especially given that interest rates have recently started to ease. However, it remains positive that mortgage borrowing currently remains lower compared to only twelve months ago, and new and improved mortgage products are continuing to enter the marketplace.”

But Nicholas Hyett, investment manager at Wealth Club, takes an opposing position and states: “If there was any doubt about what the Bank of England would do at its March interest rate meeting there isn’t now. Headline inflation has jumped significanlty, and came in some way ahead of market expectations. Higher prices for motor fuels and airfares have pushed up transport costs, while food and non-alcoholic drinks saw prices rise 3.3% year-on-year. Both will increase the squeeze on working households, as will the rise in council tax, which has seen owner occupiers’ housing costs rocket by 8% in 12 months.

“… With Core inflation nearly twice the Bank of England’s target we see little chance the Bank starts cutting rates again any time soon.”

And Sarah Coles of business consultancy Hargreaves Lansdown adds: “Higher inflation won’t have made for easy reading for the Bank of England. Neither will core CPI … It comes on the back of news that wage growth had accelerated – although not as much as the Bank had forecast – which keeps the pressure on for higher rates.

“However, GDP data will also be fresh in its mind, and the fact the economy grew just 0.1% in the three months to December will mean the Bank won’t want to keep rates too high for so long that growth stagnates entirely. On balance, a March cut is looking even less likely now, but we’re still likely to see a couple more cuts as we go through 2025.”