The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.3% in the 12 months to August 2023, a slight drop from 6.4% in July. On a monthly basis, the CPIH increased by 0.4% in August 2023, in contrast to a 0.5% rise in the same month last year.
Likewise, the Consumer Prices Index (CPI) also showed a marginal decline, rising by 6.7% in the 12 months to August 2023, down from 6.8% in July. On a month-to-month basis, the CPI rose by 0.3% in August 2023, compared to a rise of 0.5% in August 2022.
The largest downward pressures on the monthly changes in both CPIH and CPI annual rates came from the food sector, where prices rose by less in August 2023 than a year ago, and from accommodation services, where prices fell in August 2023. On the other hand, rising prices for motor fuel contributed most significantly to the upward shift in the annual rates.
Core CPIH, which excludes energy, food, alcohol and tobacco, rose by 5.9% in the 12 months to August 2023, down from 6.4% in July. The CPIH goods annual rate rose slightly from 6.1% to 6.3%, while the CPIH services annual rate slowed from 6.5% to 6.1%.
Similarly, Core CPI, also excluding energy, food, alcohol and tobacco, rose by 6.2% in the 12 months to August 2023, down from 6.9% in July. The CPI goods annual rate saw a modest increase from 6.1% to 6.3%, while the services annual rate decelerated from 7.4% to 6.8%.
Reaction
Nick Mendes, mortgage technical manager at John Charcol:
“In an unexpected announcement from the ONS Inflation in the UK fell to 6.7% in August from 6.8% in July. Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey had pre-empted an increase in inflation calling the expected increase a “blip.”
“Prior to this morning’s announcement, Inflation had been expected to have risen to 7.1% mainly due to an uptick in fuel prices, up from around 6.8 per cent last month.
“Swap rates have been falling for a few days following Andrew Bailey’s comments stating we are near the top of the rate rise cycle. Despite the rise not being a full gone conclusion as it was in previous months, markets had increasingly pre-empted a further rate rise tomorrow when the MPC meeting of 0.25%.
“Bringing the rate to 5.5% and the 15th consecutive rise.
“It will be interesting to see how markets react following today’s unexpected inflation announcement and whether we see a rate rise tomorrow.
“Any increase in base rate won’t have an impact on the current trend in lenders repricing their fixed rates downwards as a rate rise had already been factored into lenders pricing.
“Markets though will be paying close attention to the Governor’s notes following the announcement to assess whether we are indeed at the peak and if we should take the Governor’s comments with a pinch of salt.”
Ben Thompson, deputy CEO at Mortgage Advice Bureau:
“Another fall in inflation will fill the nation’s mortgage holders with hope that the tide has well and truly turned. Significant month-on-month falls ramp up the likelihood that the Bank of England will hold off on increasing rates right now. This will likely be a breath of fresh air for those on variable rates or trackers, especially if this means that interest rates are near, or at, their peak.
“There is better news for those looking to remortgage and, indeed, prospective buyers. This is due to the steady decline of swap rates, meaning many lenders have reduced rates on various deals. Although swap rates remain high in comparison to the past decade, they are some of the lowest rates we’ve seen in the past year.
“For anyone looking to remortgage or get their first mortgage, speaking to an adviser is vital, as they will ensure you are on the right deal for your financial circumstances.”
Paul McGerrigan, CEO at Loan.co.uk:
“Despite the gloom around rising energy prices, inflation is down, against all expectations. That’s a ray of hope in this cost-of-living crunch and we hope the downward trend continues picking up momentum again next month.
“Up next: the Bank of England’s big call. Given the surprise reduction in CPI by 0.1% to 6.7%, and the hitherto more stubborn core CPI (which excludes energy, food, alcohol, and tobacco) dropping by 0.7% to 6.2.%, the Monetary Policy Committee will try to decipher whether that means current interest rates are doing the job to curb inflation, have they had time to flow through or do we need another bump up now?
“If you’re on an SVR or tracker mortgage, you’re tuned in, no doubt. Let’s hope the Bank has the balance right and doesn’t drive us into a heavy recession with overly aggressive and relentless hikes.
“The MPC will be aware that rate hikes have shaken the housing market and economy and are having an impact. Let’s hope members adopt a ‘watch-and-wait’ game plan while the latest rate changes settle in.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“There was a lot of speculation ahead of today’s announcement and mostly in the opposite direction. Although the fall in the inflation rate is small, we have to take some comfort that it is at least in the right direction, especially given the global rate of inflation.
“This, along with the hint from the governor that the Bank of England may not have to increase interest rates this month while inflation is falling, could be the news many have been hoping for. Tomorrow’s MPC decision will be one we wait for with bated breath. However, mortgage rates have already been coming down but the dilemma regarding fixed rates is still one that is not easily answered. For a huge number of borrowers, the amount they are now paying for their mortgage is the highest it has been and managing monthly payments is no doubt a worry. This is reflected in the increase in arrears, which is a problem that lenders will have to manage carefully.”
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“A fall in inflation is good news however you look at it, but this isn’t a dramatic drop, so it means a rate rise is still likely to be on the cards tomorrow. For anyone with a variable rate mortgage, a 0.25% rise could add around £20 to the average monthly mortgage payment. It’s hardly earth-shattering, but coming on the back of so many rises, there will be those for whom this is the straw that breaks the camel’s back.
“For those coming to the end of a fixed rate deal and looking to remortgage, things are looking up a bit too, because a rate rise tomorrow is largely priced in, and today’s figures will support the argument that it’s time to take a break from hikes. It means yet again we could see the counter-intuitive mix of the Bank of England raising rates and the banks cutting theirs.”
