The Consumer Prices Index (CPI), which measures the rise in the price of goods and services over the year, fell to its target of 2% in May where it remained in June. But the fact it has nudged upwards by 0.2% in July acts as a reminder we are not out of the woods when it comes to the cost-of-living pressures.
The Bank of England (BoE) has been attempting to bring inflation down by keeping interest rates high. So, today’s increase in inflation also raises doubts over whether we will see another interest cut next month.
In August the BoE cut the base rate by 0.25% bringing it down from 5.25% to 5%. It was the first cut in four years and experts had predicted another cut would follow soon.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said whilst the ‘uptick’ in inflation can be a worry for households, it is still significantly lower than the 11.1% it hit in October 2022. As such, people had not need to panic just yet.
“What will be disappointing,” she said, “is the prospect that the next rate reduction may get delayed until later in the year.
“The stronger inflation reading now sits above the Bank of England’s inflation target of 2% causing complications for the central bank as it shifts towards a lower interest rate environment.”
Haine added: “Homeowners and first-time buyers hoping for a second rate cut sooner rather than later may be disheartened by the latest inflation reading, as it reduces the likelihood of a September reduction.
“Comfortingly, while mortgage rates remain high some major lenders have already rolled out cuts with the number of sub 4% home loans on the rise – offering glimmers of better times ahead. This may deliver the reassurance nervous buyers need to push ahead with a move whether to purchase a first home or upsize to a larger property.”
Will mortgage price cuts continue?
This week more lenders have emerged offering cheaper deals with Nationwide announcing yesterday (Tuesday 13 August) it was offering a rate of 3.83% on a five-year fixed rate for new customers moving home who have 40% equity or more.
With the rise in inflation reducing the chances of a Base Rate cut, will lenders now halt their mortgage price cuts?
David Hollingworth, associate director at L&C Mortgages thought not.
He explained: “Mortgage rates had already been edging down but the Bank’s cut came earlier than many had expected and has helped to drive down costs for lenders.
“In a cutthroat market rates have already tumbled further with a clutch of big lenders now offering 5- year fixed rates below 4%, levels not seen since much earlier in the year.
“That direction of travel is unlikely to be disturbed by reaction to today’s news and the market will have been well prepared for an increase.
“Instead, we’re likely to see continued and frequent movements in mortgage rates, as lenders continue to adjust and improve where they can.”
Reasons a September base rate cut could still go ahead
Meanwhile, others were not sure today’s inflation data would impact the BoE too much. Indeed, the Consumer Prices Index (CPI) measures the prices of many things and today’s hike was caused mainly by energy prices. Core inflation and services inflation both fell.
Michelle Lawson, director at Lawson Financial, speaking via the Newspage Agency, was a lot more positive about today’s figures.
“Although inflation as a whole has crept up, the key pointers show overall things are cooling. This will be music to everyone’s purses.
“Let’s hope the Bank of England’s ears are listening as this could very well indicate an additional September rate cut if the next CPI data is on the same path. The tables appear to be turning- anyone looking to buy property should consider doing so sooner rather than later.”
