The latest data from the Office for National Statistics (ONS) reveals that UK inflation held steady at 2% in June, aligning with the Bank of England’s (BoE) target rate. This marks the second consecutive month that inflation has remained at this level, leading to varied reactions from industry experts and consumer credit stakeholders.
Economic Stability Amidst Ongoing Challenges
Matt Hartley, Director of Engagement at the Money Advice Trust, the charity that runs National Debtline, highlighted the persistent struggles faced by many households. “Millions of people are still struggling, despite lower inflation, as the fallout from the cost of living crisis continues to impact household budgets. Our advisers at National Debtline hear every day from people who don’t have enough coming in to cover their essential costs, like energy or rent. This is the situation for 2 in 5 of the people we help, and more than half of the small business owners who reach out to us for advice.”
Hartley emphasized the need for the new government to prioritize support for households in difficulty. He called for a Help to Repay scheme to assist those with unmanageable energy debts and improvements in the support offered by Universal Credit.
Positive Signs and Lingering Concerns
Andy Mielczarek, Founder and CEO of Chetwood Financial, acknowledged the progress made in controlling inflation but noted ongoing challenges. “After years spent hiking the mountain of inflation, it’s good to be back on solid ground. Inflation is finally under control, and this gives Britain a platform to begin rebuilding itself, putting behind the challenges of the past two or more years. It will be interesting to see how quickly interest rates fall and by extension how much confidence the Bank of England has in the rate of inflation, but for the moment we can enjoy some long-awaited stability.”
However, Mielczarek also pointed out that the cost of living remains high and other strains still impact daily lives. “There is more to be done to improve Britons’ financial well-being, and banks will play an important role in ensuring they have the right tools to make their lives and finances more secure.”
Implications for the Housing Market
Simon Webb, Managing Director of capital markets at LiveMore, noted the stability in inflation as a positive sign for the housing market. “Inflation holding at 2% in June, remaining at the Bank of England’s target, offers a sense of predictability for the economy. For the housing market, this steady inflation rate means that interest rates are less likely to see sudden increases, which is particularly important for older buyers who often rely on fixed incomes and savings.”
Webb urged the Labour government to take advantage of this stability to address underlying economic issues. “By focusing on measures that can help keep inflation in check without stifling growth, we can create a more favorable environment for the housing market. Ensuring a stable and predictable economic environment will help maintain confidence in the housing market and provide security for older homeowners and buyers.”
Looking Forward
Stuart Cheetham, CEO of MPowered Mortgages, highlighted the progress in curbing inflation but cautioned against complacency. “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. But the progress is real, and the fact the headline rate of CPI has held steady at the Bank of England’s 2% target for two months in a row suggests the worst is past.”
Cheetham predicted that the BoE might soon shift its focus to the side effects of prolonged high interest rates, which have squeezed consumer spending and affected home ownership. “While economists will argue about whether it’s too soon to declare victory over inflation, the case for holding interest rates so high is eroding fast – and the Bank is likely to reflect this at its next interest rate decision.”
Consumer Confidence and Borrowing Trends
Richard Carter, CEO of Lenvi, expressed optimism about the impact of stable inflation on consumer behavior. “Inflation staying at 2% is welcome news for consumers and businesses after nearly three years of above-target price rises. With inflation now less than a quarter of its June 2022 rate, Brits may be more motivated to make bigger purchases, such as cars or buying a house. Our latest data on borrowing habits found that four in five Brits were likely to switch their mortgage deal this year, compared to three in five in 2022.”
Carter also noted that a significant portion of the population continues to rely on borrowing to manage monthly expenses. “While we hope to see this ease over the coming months, the volume of people still relying on borrowing to cover basic living expenses shows an ongoing need for swift action and support in the lending sector.”
Long-Term Economic Outlook
James Smith, Research Director at the Resolution Foundation, highlighted the persistent challenges despite achieving the inflation target. “Inflation remained at 2 per cent but showed signs of ‘stickiness’ as more domestically-driven services inflation remained at 5.7 per cent. While it is welcome news that inflation is at the Bank of England’s 2 per cent target, the high price of essentials – with energy prices up by 53 per cent since July 2021, and food prices by 31 per cent – will be with us for the foreseeable future.”
Smith emphasized the need for continued vigilance and strategic economic planning. “The combination of a sustained high price level, continued uncertainty about the size and timing of Bank of England rate cuts, and sticky services inflation means that families will continue to feel the effects of the high cost of living.”
As the BoE navigates the complexities of monetary policy amidst a backdrop of economic recovery and ongoing cost of living challenges, the path forward will require a careful balancing act to support growth while maintaining price stability.
