REACTION: Inflation holds at 2% but household costs still at historic highs
Industry figures hail a period of more stable inflation but high property costs mean many owner occupiers are still suffering as monthly costs stay high.
Official figures show inflation is holding steady at 2% year-on-year.
The Government’s latest bulletin for June (see main image) reveals that the Consumer Prices Index increased by 2% during the past 12 months and is at the same level as May.
The main drivers for the steadying inflation figure include downward price pressure on footwear and clothing, while hotel and restaurant prices went up correspondingly.
But the CPI does not include housing costs such as council tax and the corresponding CPIH, which does includes these costs, rose by 2.8% during the 12 months to June, pushed up by a 6.8% rise in property costs (but not mortgage payments which are included in the Retial Price Index) during the period.
And housing costs are at a historical high – the last time it hit this figure was back in 1992 when interest rates hikes mortgages rates up to double digits.
Reaction
Matt Smith, Rightmove’s mortgage expert says: “As we get closer to the likely Base Rate cut, stability in the economy is exactly what we need to keep plans on course.
“Although there is debate around the timing of the first Base Rate cut due to concerns around service inflation, it is looking increasingly likely that it will either arrive in August or September.
“In the meantime, we expect to see mortgage rates continue to fall back as lenders compete for business.”
Commenting on the likely effect of the announcement on the Bank of England’s looming base rate decision in two weeks, Paresh Raja, CEO of Market Financial Solutions says: “It’s crucial to acknowledge that the base rate won’t be cut as quickly or significantly as it was hiked. Brokers will need to support borrowers and manage expectations accordingly.
Two years of bitter interest rate medicine have worked
Stuart Cheetham, CEO of the lender MPowered Mortgages, says: “More than two years of bitter interest rate medicine have worked – Britain’s inflationary disease has been cured.
“Yes, some worrying symptoms remain. Both core inflation and service sector inflation remain high, and today’s data is far from a completely clean bill of health.
Nathan Emerson, CEO of Propertymark, says: “The positive news from today’s figures is that inflation remains in line with the Bank of England’s target of two per cent, which means that consumers should not continue to witness the price rises we saw across 2022 and 2023.
“Although a further drop in inflation today would have been welcome by consumers, Propertymark is keen to see the Bank of England consider a dip in interest rates as soon as sensible.
“When the pathway to lower interest rates finally happens, we should witness a real boost in affordability and flexibility within the housing market.”
