Does it feel like inflation is back to 2%?

The problem is that even though CPI inflation has fallen it will take time for people to feel it in their pocket as they are still dealing with the legacy costs of higher prices. Personal debt and credit card utilisation is up as people have had to make ends meet and that debt needs to be serviced. The only way today's reduction translates noticeably is with a cut in the cost of borrowing which is the hands of the Bank of England and if that cut is passed on to the borrowers.

Headline inflation is back to target and the central bank could decide to shock the market and signal their intent with a small rate cut tomorrow. However, services inflation and wage inflation both remain stubbornly high, at near 6%, and this is pouring pressure on households and businesses. Energy prices have tumbled over the last year, but there are other significant pressures. Goods price inflation is expected to increase again in the second half of the year as energy deflation falls out of the figures, now that it’s been 12 months since the first falls. This means the Bank may not cut rates quickly this year, let alone tomorrow. Mortgage rates may stay higher for much longer than some expect.

Households and businesses are crying out for that first base rate cut to ease the pain they are feeling as the after effects of the cost of living crisis linger on. If the MPC deliver on the promise set by the government of 2% being the trigger then the rest of 2024 should be a more positive one.

The economy still feels strangled despite the 2% inflation target being hit. We need the Bank of England to release their choke-hold via a base rate reduction, likely in August, while there is still a pulse.

Waiting for us to hit the 2% marker has been a lot like waiting for the British summer to arrive, only to be hit by horrendous hayfever when it did. Although those in Number 10 will be blowing their own trumpet today, we’ve arrived at 2% due to the hard work and suffering that the public endured and not through any great political intervention. Surely this paves the way for a reduction to base rate tomorrow. It should, but the Bank of England has a track record of being behind the curve.

It is noticeable that the pace of inflation is less now than when it was in double digits. While it’s great to see inflation back at the Bank of England's 2% target, it doesn’t always feel like it for businesses and charities. Sure, things have improved with more positive news from the economy, but uncertainty remains high with the election looming and geopolitical troubles worldwide.

For our business, the lower inflation rate has eased some pressure, but we're still cautious. Costs are more predictable, and there's a sense of stability compared to the rollercoaster of double-digit inflation. However, confidence for the rest of 2024 is tempered by political and global uncertainties. While we’re hopeful, we remain vigilant and prepared for any surprises that might come our way. It's a delicate balance, and we’re navigating it one step at a time.

Whilst we see a definate buzz in the industry around falling Inflation figures, apart from a few lenders already pricing in some rate cuts most are still higher than we would like. This is keeping the market subdued to a degree, although the green shoots of recovery are evident. We need to see more long term stability to evidence that this is here to stay, whilst we have elections in the background still causing some uncertainty we may need a few more weeks of this new lower inflation to see how the market will react.