INFLATION will be back to 2% in just three months, according to the Bank of England Governor Andrew Bailey, with some financial experts hailing the assertion as great news while others said his confidence “feels optimistic” in the current economic climate.
Bailey believes inflation in the UK will hit 2%, the Bank’s target, by May.
“That is pretty much baked-in,” he said to parliament’s Treasury Committee today.
The Bank of England’s base rate is currently at 3.75% after the Monetary Policy Committee (MPC) voted with a 5-4 majority to hold interest rates earlier this month.
It’s expected that the Bank’s base rate will continue to be lowered this year – but Bailey did say that a rate cut was not guaranteed in the Bank’s next decision on Thursday 19 March.
He told the Treasury Committee: “Well, we’ll see. I think at the moment I would say we’re still a little way off the next meeting. It is a genuinely open question at the moment.”
Bailey urged caution over sticky services prices inflation in data released earlier this month.
He added: “Food prices were off a bit more than we expected, but services prices didn’t come off as much as we thought they would.”
Financial experts hailed Bailey’s “baked-in” assertion as “a shift toward economic stability” while others viewed his confidence of inflation continuing to drop with suspicion, saying it “feels optimistic” in the current economic climate.
Mortgage brokers said a return to 2% inflation would be “very good news” as it would mean rates will tumble – though they urged caution as to whether this inflation drop was “baked-in”.
That is pretty much baked-in
Steven Greenall, Mortgage and Protection Advisor at Rayleigh-based Protect & Lend, said: “Hearing this from Andrew Bailey is clearly very good news and, on the back of it, mortgage rates should continue on their downward trajectory. The average borrower should see many benefits if inflation comes down to target and rates are cut.
“Those on tracker mortgages and fixed rates expiring in the next 3-6 months will also see a benefit. Of course, people with sizeable cash savings will not be too pleased at all. While borrowers are the winners, savers look set to be the losers in 2026 if the base rate heads south.
“I’m slightly concerned at the Bank of England Governor using phrases like ‘baked-in’ because anyone who knows markets knows that things can turn on a dime.”
Bob Singh, Founder at Uxbridge-based Chess Mortgages, said Chancellor Rachel Reeves could be “saved” if inflation drops as expected.
He added: “This is certainly a bullish forecast given inflation has been very sticky and reluctant to fall. If it does fall and the Bank of England hit their 2% target then it could pave the way for steeper rate cuts in the second quarter, which will inject much-needed impetus into the housing market and economy.
“It could also save Rachel Reeves’ bacon, as she is someone who is desperate for good news on the economic front.”
‘Baked-in’ feels optimistic
Ranald Mitchell, Director at Norwich-based Charwin Mortgages, said that while mortgage rates might tumble, they would go up again if inflation spikes at a later date.
He continued: “If inflation hits the Bank’s 2% target, the mortgage market won’t wait for a polite round of applause, it will move on expectation. Lenders and markets are likely to react positively, and that can mean sharper fixed-rate pricing for borrowers who are ready to act.
“But this is not a one-way bet. If inflation pops back up in the months that follow, swap rates can turn just as quickly, and mortgage pricing can harden again. For mortgage seekers, this is a window not a guarantee, but the winners will be the borrowers who are organised, decision-ready and able to move while competition is strongest.”
Rohit Kohli, Director at Romsey-based The Mortgage Stop, said Bailey’s assertion comes across as overconfident.
He added: “It would be great if inflation does hit 2%, but describing it as ‘baked-in’ feels optimistic. There are too many global variables, from energy, geopolitics and US policy, that can shift the picture quickly. When you’re Governor, that kind of certainty carries weight.
“If it doesn’t materialise, it risks denting credibility at a time when confidence is already fragile. Even if we reach 2%, it doesn’t mean prices fall. It just means they rise more slowly. For mortgages, though, it matters.
“A stable 2% backdrop should ease funding costs and allow lenders to price more competitively. That mainly helps remortgagers and borrowers with equity. First-time buyers may see rates improve, but stronger demand could push prices up again and limit the benefit.”
Andrew Bailey is living in a fantasy land
Omer Mehmet, Managing Director at Welling-based Trinity Finance, said we could be celebrating in the summer if inflation drops to 2%.
He continued: “Swap rates, which mortgage rates are priced off, have already been dropping slowly and these latest comments from Andrew Bailey could see that trend continue, if not accelerate.
“If the base rate is reduced further in 2026, borrowers could be hanging out the bunting by the summer.”
Forex expert Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the Pound could weaken if inflation drops.
He added: “A return to 2% inflation would mark a shift toward economic stability. While prices won’t drop, they will rise more predictably, allowing wages to finally outpace the cost of living. This ‘normalisation’ would give the Bank of England the green light to lower the base rate toward a ‘neutral’ 3%.
“For the average person, this provides much-needed breathing room as the era of sudden price shocks ends, though it also means the high interest rates previously enjoyed by savers will begin to disappear. For mortgages, the impact would be direct. Tracker and variable rate holders will see monthly payments fall, while lenders are likely to lower fixed-rate offers to remain competitive.
“However, the Pound should weaken against other currencies as lower rates make Sterling less attractive to foreign investors. This could make your summer holiday more expensive, as £1 will buy fewer Euros or Dollars. The move signals a transition from “crisis mode” to a more balanced, manageable economy.”
Financial advisers were more suspicious of Bailey’s prediction – saying he was living in “a fantasy land”.
Past predictions have been wildly off the mark
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, was critical of Bailey’s prediction.
He continued: “Which May? I am staggered by this forecast because I just don’t believe inflation will drop to 2% in a matter of months.
“Andrew Bailey is living in a fantasy land. I appreciate his optimism and I assume a significant cut is on the cards next month now.”
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said he expects inflation to remain more sticky.
He added: “Andrew Bailey’s past predictions have been wildly off the mark, and this one seems no more likely to hit the bullseye.
“Inflation is more likely to stay above target into 2027, but maybe this is the Bank signalling more interest rate cuts, which would be welcomed.”
While Riz Malik, Director at Southend-on-Sea-based R3 Wealth, was more positive.
He continued: “With inflation returning to the magical 2%, anything is possible. This is very positive news and gives a good signal for further Bank of England rate cuts.
“Excellent news for those buying or refinancing this year. But, as always, anything could happen.”
Photo by Dan DeAlmeida on Unsplash.
