Inflation dropped sharply in the year to April last week, yet brokers have cautioned borrowers against assuming mortgage rates will continue to fall in the coming weeks and months, with one describing the steeper-than-anticipated decline in inflation as “a wolf in sheep’s clothing” and another calling it a “mirage”.

Inflation tumbled more than forecast to 2.8% in the 12 months to April, down from 3.3% in the year to March, owing to the lower energy price cap, which offset the impact of rising fuel costs triggered by turmoil in the Middle East. The Consumer Prices Index (CPI) rose by 2.8% in the 12 months to April 2026, down from 3.3% in the 12 months to March.

On a monthly basis, CPI rose by 0.7% in April 2026, compared with a rise of 1.2% in April 2025. Grant Fitzner, chief economist at the Office for National Statistics, said there was “a notable fall in annual inflation led by lower electricity and gas prices”.

He continued: “This was due to the Government’s energy bill support package reducing variable and fixed tariffs, along with lower global wholesale energy prices before the conflict in the Middle East, which fed through to the reduction in the Ofgem cap.”

Nevertheless, Mr Fitzner highlighted that elevated crude oil and petrol prices are pushing the cost of both raw materials and factory goods upwards.

Shaun Sturgess, director at Swansea-based Sturgess Mortgage Solutions, said: “This data could be a wolf in sheep’s clothing for borrowers. There is a chance that borrowers will see the headline figure showing inflation is falling and believe that rates could soon be coming down.

“The reality is that this data is masking the full impact of the fuel crisis caused by events in the Middle East and that inflation could rise sharply over the summer, especially if the conflict intensifies. That could send rates higher rather than, as this data may make people think, lower.”

Philly Ponniah, chartered wealth manager and financial coach at Philly Financial, echoed those concerns: “This drop in inflation will feel like welcome relief for borrowers, but I’d be careful about treating it as a true turning point. Much of the fall came from temporary energy effects and we still haven’t fully seen the impact of higher oil prices and Middle East tensions feed through into the wider economy.

“If inflation starts climbing again over the summer, expectations around future rate cuts could change very quickly. For borrowers, that creates a real risk. Some people may delay fixing their mortgage or refinancing because they expect cheaper deals ahead, only to find rates move higher again if inflation stays stubborn.

“Waiting for the ‘perfect’ rate can sometimes cost more than securing certainty. For savers, lower inflation is positive because cash savings are no longer losing value as quickly, but it’s still important to review rates regularly rather than assuming today’s returns will last.”

Hannah Vandervennin, director of The Mortgage Consultancy, said: “Today’s inflation number is welcome, but a chunk of the fall was driven by the energy support package and base effects. Both are temporary and oil is going the wrong way.

“The cost of borrowers waiting for the perfect moment isn’t a slightly worse deal. It’s the deal you didn’t do, the property you didn’t buy and the remortgage you kept putting off until your fix ran out and you rolled onto your lender’s standard variable rate by default. Look at your actual situation, make a decision and move forward.”

Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, noted that “falling inflation sounds positive, but prices often lag world events”.

He went on to warn: “With the sustained conflict in the Middle East, prices are more likely to rise in the months ahead, so this could be a mirage in the desert on a bumpy road that is inflation.”

Justin Moy, managing director at Chelmsford-based EHF Mortgages, cautioned that “borrowers need to understand how this anomaly in the inflation rate has occurred, and that the full effects of the Middle East conflict don’t yet show in these numbers”. He added: “Lenders and the markets are already braced for what the next few months will look like and, as mortgage rates are priced on future costs, significant rate cuts are definitely not on the horizon.”

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning, urged savers not to become complacent simply because inflation had eased.

He warned: “Inflation is the silent erosion of wealth and, even at these levels, it continues to reduce purchasing power over time. Many people focus on nominal returns, especially on cash, but the real return after inflation is what truly matters.

“If your savings are earning 3–4% but inflation is close behind, the real gain is minimal. Over time, that can significantly impact long-term financial plans. The key is not reacting to one month’s figure, but ensuring your strategy is built to protect and grow wealth in real terms.”

The FTSE 100 tumbled sharply on Tuesday, as did UK bonds, with investors on edge ahead of local elections and amid continued uncertainty across the Middle East.

The FTSE 100 closed down 144.82 points, 1.4%, at 10,219.11.

The FTSE 250 ended down 87.80 points, 0.4%, at 22,443.81, while the AIM All-Share climbed 2.62 points, 0.3%, to 799.28.

Following Monday’s significant gains, during which London’s financial markets were shut, the oil price eased slightly as the fragile ceasefire between the US and Iran held on by a thread.

US secretary of war Pete Hegseth warned on Tuesday that any assault on commercial shipping by Iran would be met with a “devastating” response.

Mr Hegseth told reporters: “We’re not looking for a fight. But Iran also cannot be allowed to block innocent countries and their goods from an international waterway.”

Brent crude for July delivery was changing hands at 110.70 dollars a barrel on Tuesday, higher than the 108.86 dollars recorded at the close of London equities on Friday.

Across European markets on Tuesday, Paris’s CAC 40 finished up 1.1%, while Frankfurt’s DAX 40 surged 1.7%.

The yield on UK 10-year gilts climbed to 5.08 per cent on Tuesday from 4.96 per cent late on Friday, with domestic political uncertainty compounding the impact of the Iran conflict.

Thursday’s local elections in the UK are anticipated to deliver substantial council seat losses for the Government. This could potentially trigger a leadership challenge to Prime Minister Sir Keir Starmer.

Michael Brown, senior research strategist at Pepperstone, thinks the “best-case” outcome from the local elections for UK assets would be a “relatively contained Labour defeat, which allows PM Starmer to stumble on for a short while longer”.

Susannah Streeter, chief investment strategist at Wealth Club, said investors in UK government debt are “uneasy”, amid concerns that a replacement might steer the Government towards a less fiscally responsible spending direction.

“Rising gilt yields mean it’s becoming more expensive for the government to finance UK debt, which puts pressure on current budgets,” while they also serve as a “red flag” for the mortgage market, given that banks and lenders base many loan rates on these market movements.

Sterling slipped to 1.3569 dollars on Tuesday afternoon, down from 1.3626 dollars on Friday.

In London, climbing bond yields and mounting concerns over a prolonged conflict in the Middle East stoked fears of a damaging blow to economic growth.

Banking stocks were among the worst performers, with lenders HSBC, Lloyds, NatWest and Barclays falling 5.9%, 3.4%, 3.6% and 3.3% respectively.

HSBC was dealt a further blow by mixed first-quarter results, with a solid underlying performance overshadowed by higher-than-expected costs and disappointing impairment charges.

Those charges included a 400 million dollar fraud-related, secondary, securitisation exposure with a financial sponsor in the UK, as well as a 300 million dollar increase in allowances to reflect the possible impact of the Middle East conflict.

The Financial Times reported that the UK fraud charge was linked to collapsed UK mortgage lender Market Financial Solutions, citing people familiar with the matter.

A 400 million dollar loss would place HSBC amongst the lenders most severely affected by the MFS collapse. Last week, Barclays PLC absorbed a £228 million blow from its demise.

Citi analyst Andrew Coombs noted the UK charge was “not expected”, while the increase linked to the Middle East conflict was “broadly as anticipated”.

Retailers also found themselves under pressure amid concerns that rising energy prices could dampen consumer spending.

Marks & Spencer tumbled 4.8%, while JD Sports, which is due to publish full-year results this week, shed 3%.

Heading the gainers, Intertek surged 6% after EQT raised its bid proposal for the FTSE 100-listed firm to 5,800p per share, up from 5,400p per share.

BT climbed 3.5% after Bank of America (BofA) upgraded the stock to “buy” from “neutral”, buoyed by expectations of higher dividends.

Gold edged lower, trading at 4,576.51 dollars an ounce on Tuesday, down from 4,637.78 dollars on Friday.

The biggest risers on the FTSE 100 were Intertek, up 286p at 5,090p; Spirax, up 274p at 7,372p; Polar Capital Technology Trust, up 15.5p at 627p; BAE Systems, up 42.5p at 2,077p; and Compass, up 0.55p at 28.8p.

The biggest fallers on the FTSE 100 were Entain, down 36.6p at 531.2p; HSBC, down 79.6p at 1,279.8p; Marks & Spencer, down 16.0p at 321.5p; Fresnillo, down 140p at 3,115p; and Weir Group, down 110p at 2,490p.

Wednesday’s global economic agenda features a host of composite PMI readings, including the UK at 9.30am, along with US ADP employment figures.

Wednesday’s domestic corporate diary includes a trading update from Johnnie Walker owner Diageo, clothing and homewares retailer Next, and medical technology firm Smith & Nephew.

Contributed by Alliance News.