Inflation nudges down to 10.7%
Inflation came down from 11.1% in October to 10.7% last month. Free PR platform, Newspage, sought the views of IFAs and mortgage brokers.
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It’s too early to call a peak in UK inflation but at least now it is heading the right way. Price rises in restaurants, cafes and bars provided the highest upward pressure in November and the feeling is that companies are still trying to keep their profit margins intact (and even increasing them) by passing on absolutely all input cost rises. We need to see a few more months of data before we call a peak in the rising interest rate cycle but we get the impression that we are not far off. There are reasons to be cautiously cheerful.
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Savers, borrowers and consumers are unlikely to celebrate because inflation remains the grinch that stole an affordable Christmas. Until the headlines start to be felt in better living standards, I'd be surprised if anyone is out sharing this good economic news with their mates.
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Though inflation came down, it will be disappointing for borrowers, as the reduction in UK inflation didn’t match that of the US yesterday. This will mean that the Bank of England will push forward with a further 0.5% increase in rates in its flawed plan to get inflation under control. This proves the central bank got it wrong. Inflation will not peak at over 13%, it’s already starting to fall. Markets will react negatively to this today, and I expect to see further losses all week. All eyes will be on what the US central bank does today. That will have a greater impact on markets. We’ll get a glimpse of how central banks around the world will react to falling inflation.
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This drop will allow the Bank of England to give themselves a false pat on the back. This is the second time we have seen a dip in inflation since the BoE started increasing its base rate but these have also coincided with huge drops in fuel prices. Hopefully, we'll see further drops as people slow down spending after Christmas and this will prompt the BoE to lower the base rate and give some overdue relief to homeowners. The BoE's plan of increasing the base rate to reduce spending just hasn’t worked. It’s been a ridiculous attempt to try and show the UK that they have some form of control on inflation, which quite clearly they haven’t. All they have done is apply misery to millions of homeowners. It’s time to go back to the drawing board and look at how to help families reduce bills rather than risk making them homeless.
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Bringing a knife to a gunfight, the Bank of England must maintain its aggressive stance for this week's rate decision at least. The UK economy is so fragile, they will break it, and markets will counter any positive pricing from a lower inflation print with the larger negative effects on the economy of raising rates into a recession. We may be seeing peak rates imminently, which potentially brings UK rate cuts forward to as early as the second half of 2023. Savers, lock in your rates, and borrowers, sit tight.
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The small drop in inflation will not influence base rate decisions, unfortunately. A further base rate rise is totally expected, and priced into both mortgage and savings rates, and most are predicting an increase of 0.5%. For mortgage borrowers, this on its own will only affect a relatively small number of borrowers, given the vast majority are still on fixed rate deals, we may just see the recent fixed rate reduction trend slow a little. The difference between variable and fixed rates continues to narrow, which is quite normal.
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This is great news regarding a dip in inflation but isn’t anywhere near the amount we need. For savers, it will make a slight difference as they won’t be losing as much as before, in real terms. For people who save in investments where there is likely to be a higher return, they will potentially see a benefit as they may be breaking even or quite possibly making a little profit. The Bank of England will still need to raise the base rate to control inflation further. We aren’t where we need to be as an economy but let’s hope this is the start of the recovery period. Let’s enjoy the good news before Christmas.
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A very small step in the right direction, but this is likely to have no impact on the Bank of England vote tomorrow and we are fully expecting another 0.5% base rate rise. However, with lenders having already priced in December's rate increase, it won’t be until the 2nd of February meeting that we get a true indication of mortgage rates for early next year.
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It's no surprise that inflation will fall, given that it's measured on last year's figures. December 2021 saw inflation at the yearly high of 5.38%, so I would expect to see it fall steadily throughout the next 12 months. This will ease the pressure on the Bank of England to keep raising interest rates. We may see lower and more stable fixed rates in 2023, which will, in turn, help the economy.
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The Bank of England’s effort to control inflation is finally yielding some results. While we might have seen the peak in inflation, this is far from being at normal levels, so the Bank of England will continue to raise rates. Good news. for savers, as interest rates are headed higher; borrowers can also hope their mortgage rates won’t rise as much.