Hopes for an imminent interest rate cut appear to be fading fast, as persistently high inflation continues to frustrate the Bank of England’s efforts to bring price growth under control.

Oil prices surged by 5% on Tuesday, reaching their highest level of 2025 so far fuelling concerns that rising fuel and transport costs will filter through into the broader economy and drive inflation even higher.

The swaps market, which mortgage lenders use to set rates on new loans is now pricing in just one more cut to the base rate this year, reflecting reduced confidence in the inflation outlook.

While inflation eased slightly to 3.4% in May, according to the Office for National Statistics (ONS), it remains well above the Bank’s 2% target. The figure had previously spiked to 3.5% in April due to a raft of bill increases, though the ONS later admitted a data error relating to vehicle tax meant the correct figure for April should also have been 3.4%. However, no official revision has been issued.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, cautions: “The June figures could bring decidedly less welcome news. The spike in energy prices caused by geopolitical instability will feed through into pain at the pumps, and will start to increase the cost of producing and transporting all other goods.

“A short-lived jump in oil prices may not cause too much concern, but if prices remain high for a prolonged period, it could force the Bank of England to delay rate cuts further.”

What Does This Mean for the Property Market?

For buyers, homeowners and landlords, the takeaway is clear: the return to low interest rates looks increasingly unlikely in the short term. This has several implications:

•           Mortgage rates are likely to stay elevated, impacting affordability for first-time buyers and remortgaging homeowners.

•           Those coming off fixed-rate deals may face significantly higher monthly repayments, particularly if their previous rate was set during the historic lows of recent years.

•           Landlords, especially those with variable rate buy-to-let mortgages, may see profits squeezed further, and could be more cautious about expanding portfolios.

•           House prices may come under continued pressure, with affordability constraints dampening demand in certain areas.

With inflation still proving resilient and geopolitical uncertainty affecting global markets, the Bank of England will be wary of acting too soon. Property investors and homeowners should prepare for a sustained period of higher borrowing costs and act strategically.