The latest CPI inflation figures from The Office for National Statistics (ONS) has revealed a drop to 6.8% in July, down from 7.9% in June.
While, Consumer Prices Index including owner occupiers’ housing costs (CPIH) increased by 6.4% in the 12 months leading up to July 2023, a dip from June’s rate of 7.3%.
Falling food prices and the reduction in the energy price cap were both factors in July’s inflation figure falling.
However, there were sectors that countered the trend of falling prices. Hotels, coupled with passenger air transport, were the primary contributors pushing inflation upwards during this period.
Inflation peaked at 11.1% in October last year and has remained sticky over the past 10 months.
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Ben Thompson, deputy CEO at Mortgage Advice Bureau:
“While July’s inflation fall is a firm sign that the headline rate is moving in the right direction, salary rises have thrown up yet another conundrum for the Bank of England.
“Wages have grown at a record level to 7.8% and are now higher than current inflation at 6.8%. Inflation dropping back opens the door for the BoE to press pause on rate rises, but record wage growth keeps potential hikes firmly on the table.
“Inflation being below average wage growth could mark a turning point in the cost-of-living crisis, and potentially signal good news for mortgage customers, with lenders already reducing their rates and more manageable payments becoming a reality.
“As always, the best advice for homebuyers is to act early, as this will allow them to lock in the most suitable mortgage, backed up with the security that if a better deal comes along, they can take it.”
Paresh Raja, CEO of Market Financial Solutions:
“Another step in the right direction, with today’s CPI drop following on from the smaller-than-expected base rate hike at the start of the month. But it might be a case of two steps forward, one step back; all the talk this week has been that we are in for a shock rise in inflation when next month’s data comes out on 20 September. Given the Bank of England’s next interest rate decision follows the next day (21 September) that will likely prove a hugely important 48 hours.
“For now, we should allow some positivity to permeate back into the property and lending markets. After a challenging 18 months, any time inflation falls should be welcomed, and we could see such good news reflected in the products and rates available to property buyers. Still, lenders must double down on a proactive approach to supporting brokers and borrowers who will be feeling the effects of high inflation and consistent base rate hikes. In turn, lenders can help the market return to a more buoyant state.”
Jatin Ondhia, CEO of Shojin:
“It’s good news today, but there are strong rumours that next month’s data will show a rise in inflation once again. This story is far from over – Rishi Sunak and Jeremy Hunt’s target of bringing inflation under 5% by the end of the year is looking increasingly out of reach, and that will have implications on consumers, investors, businesses and the financial markets.
“Even with today’s fall, inflation remains high, and if indeed it does rise again next month, we have to expect the Bank of England to come hard with more interest rates hikes. As borrowing becomes more expensive, this will inevitably further impact house prices and property development. For investors, meanwhile, it is crucial they assess how well positioned their portfolios are to deliver returns amid stickier-than-expected inflation.
“Diversification will likely remain a watchword for investors. Predicting quite where interest rates and inflation will go in the months to come is difficult, so many people will opt to diversify their investments so they are not tied too closely to any particularly market forecasts.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“Although it is in line with many predictions, it is good to see inflation come down below 7%. The hope was that it might get down to 5% by the end of the year, but there may be a couple of factors that will have had an effect when we see next month’s figure.
“Prices at the petrol pumps have been going up this month which, along with rising wages, has the potential to push inflation up again next month. With this in mind the Bank of England is highly unlikely to veer away from its current path, and another base rate rise is likely to be on the horizon.
“For the housing market and mortgagers in particular this would be another blow, especially when we are already seeing arrears increasing. The recent rate cuts on fixed rates has given a bit of hope for some I’m sure, but there seems no respite for those that now find themselves on SVRs. Lenders will need to be canny to meet their lending quotas in the last few months of the year as borrowers face the dilemma of whether to fix now or wait.”
Kevin Brown, savings specialist at Scottish Friendly:
“The speed at which inflation has fallen over the past two months, down from 8.7% in May to 6.8% in July, is somewhat of a false dawn.
“Price rises have eased considerably in some areas, such as gas and electricity bills, which has driven down the headline rate of inflation.
“But the current downward trajectory is unlikely to continue with the Monetary Policy Committee predicting more incremental reductions over the coming months.
“It means that interest rates may still rise further and are likely to remain elevated until inflation falls closer to the Bank of England’s 2% target.
“Savers will be holding out hope that inflation does finally fall below the rate of interest being paid to them and brings to an end a two-year spell in which price rises have eaten into the value of their savings.
“For now, the only possible way for them to beat inflation is to invest their money in the stock market as there is the potential to generate higher returns.”
Lewis Shaw, owner and mortgage expert at Shaw Financial Services:
“These are not the figures we were hoping for. It’s positive that headline inflation has fallen but core inflation has stayed the same and will spook bond markets, the Bank of England and mortgage lenders with just how sticky it is.
“Expect more base rate rises starting with 50 basis points in September and more hikes until this inflationary tiger has been captured and put back in its cage. Sadly this is the end of mortgage rate cuts for now. This is your four-minute warning: anyone needing to remortgage should get on and do it now. Buckle up because the storm is coming.”
John Choong, equity research analyst at Investing Reviews:
“The inflation nightmare has returned to haunt markets yet again. Although the headline figure dropped substantially and matched what the market was expecting, it’s the core figure that will alarm the Bank of England as it remains sticky at 6.9%.
“This was in part thanks to resilient spending in restaurants and hotels as well as recreational and cultural activities, both of which have been the superglue in sticky services inflation. Either way, today’s print will be seen as a mixed bag.
“While it confirms that inflation is falling, the fact that services inflation remains hot means that it’s becoming increasingly likely that the MPC will have to raise interest rates to 6% or higher. As such, cuts to mortgage rates may take a breather until September.
“But with another wage growth print before the next Bank of England meeting, it’s possible that a lower number could cool change the narrative. Either way, investors and lenders alike will have to brace for another month of volatility.”
Riz Malik, founder & director at R3 Mortgages:
“We anticipated a significant drop in CPI inflation primarily due to energy prices, and the results have not let us down even though core inflation remains sticky. The decline in inflation is expected to help offset the recent surge in wage growth, which reached a 22-year peak.
“Alone, this trend could have raised significant concerns for the Bank of England and further rate increases are still expected. This is encouraging news for the mortgage sector and should continue the mortgage rate rollbacks we have been seeing over the past few weeks if the markets view the data positively.
“It’s likely that the Prime Minister and Chancellor will be high-fiving each other and celebrating the steep decrease. Even if they didn’t directly influence it, they won’t hesitate to claim the credit for it.”
Jamie Lennox, director at Dimora Mortgages:
“It’s fantastic to see that CPI has slowed further for a further month, but a sticky core CPI is firmly in the rearview mirror and could be the catalyst for further increases to the base rate from the Bank of England.
“If the markets also see this fueling further increases, we could quickly see the price reductions we’ve seen in recent weeks on fixed rate mortgages being undone and back in a direction we don’t want to see.
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“The inflation rate falling by over 1% in a single month means UK homeowners can start celebrating. The worst may be over. There was worry that core CPI may have risen slightly, but it remained at 6.9%.
“This should give Andrew Bailey and his cronies plenty to mull over at the next policy meeting. I wouldn’t expect a further rate rise at the next meeting, and if the good news on inflation keeps coming, we could see rates slashed by the end of the year. I expect to see lenders repricing mortgages over the next 48 hours and the price war for new business is set to continue.”
Craig Fish, director at Lodestone Mortgages & Protection:
“This news will hopefully act like a calming pill for the mortgage lenders, but core inflation remains sticky and as a result, I expect the MPC to increase rates at their next meeting and the lenders to now hold steady. I strongly suspect that Rishi Sunak and Jeremy Hunt will be claiming that ‘their plan’ is working, despite not being responsible, and hoping it bodes well at the next election.
Rohit Kohli, operations director at The Mortgage Stop:
“These latest inflation figures, whilst positive, have given the Bank of England a headache when combined with the fact that wages rose faster than inflation. This will add more pressure onto Threadneedle Street to raise rates or at least hold them at current levels for longer than planned.
“If this happens then house prices will continue to reduce in some areas but with recent rate reductions from lenders we are starting to see an increase in enquiries from would-be buyers.”
Gary Boakes, director at Verve Financial:
“With core inflation not moving from June, it is more than likely going to be another 0.25% at the next MPC meeting. The good news is that with lenders refusing their rates over the past two weeks it is u likely to have any impact on the mortgage rates which will mean a much-needed month of stability.”
Paul McGerrigan, CEO at FinTech broker Loan.co.uk:
“It will come as a considerable relief to both the Monetary Policy Committee and most of the population to see the headline inflation rate continue a downward trajectory.
“On the surface of things a 1.1% drop in CPI is a very positive sign, but it’s too early for the committee members to begin patting themselves on the backs, core inflation remains exceptionally stubborn at 6.9% for July, unchanged from June, meaning we’re not out of the woods.
“Now is the time for the Bank of England to hold its nerve and allow its recent interest rate hikes to have an effect, which takes months to run through into the wider economy, rather than its hitherto more knee jerk responses, especially when you consider that almost a third of UK mortgagees are struggling to afford their monthly payments according to the ONS. “Brokers need to be on the front foot with all the tools at their disposal to help those who are struggling in these economically turbulent times.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“Inflation falling by 1.1% to 6.8% is good news but there is still a long way to go to reach the government’s 2% target. Once again the main reason was the fall in energy prices but it is still high.
“However, core inflation is now higher than the main figure at 6.9%, which excludes the food and energy prices. Along with yesterday’s announcement of wages growing by a record 7.8% in Q2, it looks likely the next base rate decision will be another upward hike.”
Sam Norris, managing director, Grand Union Finance:
“As much as the figures are obviously positive, as it shows we are moving in the right direction, I can’t see the BoE slowing down their plans to keep this downward trend but continuing the raise the base rate. 5.75% by the end of this year is still highly likely, and this is looking like it will create a new “temporary normal” in the mortgage world, which will not be good news for vendors and estate agents as this should keep demand for property low, and lead to a reduction in prices.
“However, we do look like are on track for that sub-5% inflation figure by the end of the year that Rishi Sunak pledged, so I would like to think, if this is achieved, base rate reductions could follow in Q2 2024.”
