Another interest rate rise is on the cards in August as inflation figures revealed prices are falling – but not fast enough.
The Consumer Prices Index showed inflation was at 7.9% in June, this is the lowest since March 2022 but still nowhere near the 2% target set by the Bank of England.
It comes after two months where inflation, which measures how much goods and services have increased in price over a year, stuck at 8.7%.
So, whilst it is good news prices are starting to come down, experts believe the fall is not big enough to persuade the Bank of England from raising interest rates when they meet on 3 August.
Clare Batchelor, mortgage operations manager at Wesleyan, said: “Inflation’s moving in the right direction.
“The central bank has been clear that it must ‘see the job through’ when it comes to bringing inflation down to its 2% target, so it’s widely expected that it will raise interest rates again in a few weeks’ time.
“Potentially, we’ll see even more rate rises beyond that later this year if prices are still rising too quickly.”
Batchelor’s advice to anyone looking for a mortgage, or who has a fixed rate deal ending soon, is to speak to a mortgage adviser now.
“It can take time to find and secure a deal, and any delay may be costly,” she added.
Keeping a tight budget
Inflation falling from 8.7% in May to 7.9% in June shows prices are not rising quite as fast as they have been in recent times.
Alice Haine, personal finance analyst at Bestinvest, said it would provide ‘some relief to households’ and greater hope that the long run of tearaway prices rises was finally over.
She explained core inflation – which strips out the more volatile items such as food and energy – remained high at 6.9%, though it is down on May’s 7.1%. This, she said, indicated that the Bank of England’s cycle of interest rate rises was finally having the desired effect – to bring stubbornly high inflation closer to its target of 2%.
For households, lower inflation means money can stretch a little further but it comes as annual food inflation eased slightly to 17.4% from 18.4% in May.
The advice to households is to continue to keep a tight rein on budgets.
Haine said: “This is still worryingly high, so a frugal approach towards spending will still pay off, particularly as homeowners are increasingly being hit with higher mortgage payments.”
How high will rates rise in August?
Whilst most experts are now expecting a rise in interest rates when the Bank of England’s monetary policy committee (MPC) meets on 3 August, there is still debate over how much of an increase we will see.
Danni Hewson, AJ Bell head of financial analysis, said: “Behind closed doors at the Bank of England there are likely to be some pretty intense discussions taking place between now and their next interest rate decision.
“This time the bank got its sums right, it had expected headline inflation in June to fall to 7.9% but MPC members won’t be able to ignore that core figure.
“Markets are now pricing in a less strident move in August, with a rate hike of just a quarter percentage point rather than the half point that most had been considering just a few weeks ago and looking further out the expectation is for rates to top off at 5.75% rather than over six which had been on the cards.”
