UK inflation has fallen from 3.2% in March to 2.3% in April, its lowest level in nearly three years.

The rate of inflation, which was 2.3% against experts’ forecast of 2.1%, has been driven largely by a 12% reduction in the energy price cap in April.

While the fall in inflation is good news and closer to the 2% target the Bank of England (BoE) is aiming for, it is higher than expected alongside services inflation, reducing the chance of a base rate cut in June.

“Within minutes of the official inflation numbers hitting our screens, market expectations that the Monetary Policy Commitee (MPC) could shift the base rate down next month plummeted from 50/50 to just over 10%,” says Danni Hewson, head of financial analysis at AJ Bell.

What lower inflation means for savers

The drop in inflation means prices are rising more slowly rather than falling. While this isn’t exactly what consumers are seeking, it’s still welcome news.

As inflation is now 2.3% and top savings rates are around 5%, savers can still easily beat it if they opt into a savings account with a fixed rate. This means their money doesn’t lose value in real terms.

However, the more likely base rate cuts become, the more likely savings rates will fall.

While the likelihood of a base rate cut has been pushed back, it’s worth shopping around for a fixed-rate deal now if you want to take advantage of generous rates for longer.

What lower inflation means for homeowners

Meanwhile, homeowners have had a tricky time this year as mortgage rates have been volatile, rising and falling with little warning.

While mortgage rates initially fell at the end of 2023, they recently rose again after US inflation increased more than anticipated. This led to uncertainty over when the BoE will cut the base rate.

As the BoE was largely expected to cut the base rate in June before today’s inflation data, mortgage lenders were recently reducing their rates.

There’s a chance mortgage rate cuts will ease (or rates could rise) now that the base rate is expected to be cut later than June. 

What lower inflation means for annuities 

If you’re retired or hoping to retire soon and are considering an annuity, consider the impact a future base rate cut may have on annuity rates.

Over two years, annuity rates soared 24%, driven by base rate rises. So, any future cuts could impact your rate and the fixed income you receive.

Whether you’re planning for retirement, buying a home, remortgaging, or investing, it’s a good idea to get financial advice.

Unbiased can quickly connect you with a qualified financial adviser who can help you get the most out of your money.