Controversy surrounds the possibility of a 15th consecutive interest rate hike during the upcoming Bank of England monetary policy committee meeting next month. This debate follows a series of recent statistics about the UK’s economic status.
Inflation has decreased to 6.8% in the year leading up to July from 7.9% in June, as reported by the Office for National Statistics. This marks the second consecutive month of significant inflation reduction, reaching a 15-month low. Nevertheless, while the recent drop can be attributed to lower energy price caps and slower food cost growth – particularly in items like milk, bread, and cereals – the core inflation rate, which excludes energy and food, remains relatively elevated.
The inflation update arrives after information indicating remarkable annual wage growth during April to June: regular earnings surged by 7.8%, the most substantial yearly expansion rate since comparable records commenced in 2001.
Julian Jessop, an economics fellow at the Institute of Economic Affairs, a free market think tank, comments: “The inflation figures indicate a positive decline in the headline rate; however, the core inflation, excluding food and energy, remains at 6.9%. The headline rate is predicted to inch up in August due to increased fuel and alcohol costs, adverse base effects, and the persistent robustness of the labour market.
“Numerous factors suggest that inflation will likely decrease throughout the year, particularly the significant slowdown in money and credit growth. Escalating unemployment and diminishing job openings imply that wage pressures will soon reach their peak as well.”
“Regrettably, the Bank of England persists in focusing on recent headline data rather than taking a pause to evaluate the impact of the substantial policy tightening that’s already been enacted. This raises the likelihood of an unnecessary interest rate hike.”
Nicholas Mendes from the esteemed mortgage intermediary John Charcol comments: “In comparison to other countries, UK inflation remains elevated and surpasses the Bank of England’s 2.0 per cent target. Following this inflation announcement, markets are anticipated to remain steady, avoiding abrupt knee-jerk reactions seen in the past.
“Before this announcement, markets had factored in a peak base rate rise of 6.0 per cent, indicating a further 0.25 per cent increase in September regardless of the inflationary data. This would mark the 15th base rate increase.”
However, some believe there’s room for the Bank to halt further increases.
Kate Steere, deputy editor and housing specialist at Finder, a personal finance comparison website, expresses optimism: “I’m hopeful that this decrease in inflation might prompt the Bank of England to temporarily halt its base rate hikes in the upcoming monetary policy committee meeting. This could stimulate a mortgage price competition among major providers, potentially bringing more competitive rate choices to the market. This would offer much-needed relief to potential buyers and mortgage holders across the UK.”
Ben Thompson, deputy CEO of the Mortgage Advice Bureau, adds: “Inflation below average wage growth might signal a turning point in the cost of living challenge, potentially bringing positive news for mortgage customers. Lenders are already reducing rates, making payments more manageable.”
Read more Property Investing News HERE
