In welcome news for British consumers, UK inflation has dipped to 3.4% in the year to February, marking its lowest level in nearly two and a half years. The Office for National Statistics attributes this decline primarily to a slower pace of food price increases, along with decreases in soft drink prices, as well as those in restaurants and hotels. However, these positive trends were somewhat offset by rising petrol prices and rental costs.
While the drop in inflation may suggest a slight easing in the cost of living, it’s important to note that prices are still on the rise, albeit at a slower rate than before. Chancellor Jeremy Hunt views this development as a sign that the government’s economic plan is yielding results, suggesting that it now “opens the door” for the Bank of England to consider lowering interest rates.
However, not all are convinced of the rosy outlook. Labour’s Rachel Reeves contends that despite the decline, prices remain high, asserting that the country cannot afford another five years of Conservative governance. Indeed, while the overall inflation rate has eased, housing and rental costs have been on the rise, posing challenges for many households.
The housing and household services sector saw its annual rate climb to 2.9% in February 2024, up from 2.5% in January. This increase was driven by higher costs for homeowners, including mortgage expenses, and an uptick in rental prices. The rental market, in particular, has faced pressure as landlords pass on increased mortgage costs to tenants or exit the market altogether, resulting in fewer available rental properties.
Amidst these developments, there is hope that mortgage rate cuts may be on the horizon. Mortgage brokers anticipate that lenders may start offering more favorable pricing on new fixed deals in response to the easing inflationary pressures. Furthermore, there is anticipation surrounding the Bank of England’s upcoming decision on the base interest rate, with hopes that a potential cut could boost consumer confidence and provide relief to borrowers.
As the Bank of England prepares to announce its decision, consumers and market observers alike await eagerly to see how these developments will impact borrowing costs and the broader economic landscape.
