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Get the lowdown on inflation rates – down to 4.6% but what does it mean?

UK inflation is at the lowest rate in over 2 years, but what does this mean for UK consumers and mortgage holders?

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 21 November 2023

3 min read

Get the lowdown on inflation rates – down to 4.6% but what does it mean?

The latest figures from the Office for National Statistics (ONS) have reported a significant drop to 4.6% in the Consumer Price Index (CPI) in the 12 months to October 2023. This marks the largest recorded reduction in over 30 years and our lowest rate for over 2 years.

Economists have attributed the fall in the CPI to the reduced energy prices as we’re seeing the cost of gas and electricity falling. Also, the energy price cap was reduced last month which gave many households a much needed breather in the cost of living. It seems a lifetime ago that we were talking about sky rocketing energy prices and the impacts of the war in Ukraine, which was actually only 12 months ago.

The reduction in the inflation rate was predicted by expert economists at Reuters, who were suggesting around 4.8% from September to October. We’ve also seen the food inflation rate drop to 10.1% which is the lowest rate since June 2022 and the core inflation rate dropped to 5.7% from 6.1% (this figure does not include energy and food prices).

In reality for our day to day outgoings, we’re likely to see no real change in the cost of living at all for several months, if not longer. The Bank of England target of 2% for inflation is still a long way off and so we’re still likely to see cost of living going up, but slower than previously.

Costs of fuel at the pump still remain high at around 160p per litre at most garages and the Bank of England base rate (BBR) remains stable at 5.25%. Also, experts are still predicting another increase to energy prices in the New Year which could increase the average household bills from £1,834 to £1,931 per year.

Two of the main drivers for this big drop in the Consumer Price Index is food price and energy bill inflation rates. Both of these rates were cut significantly in October which had an immediate effect on the UK’s inflation rates, as predicted by chief economists at the likes of Reuters.

Energy price inflation fell as a result of the change to the energy price cap which saw the typical cost of gas and electricity cut by 23%. In real terms this meant that the average household bills would fall from £2,500 to £1,923 per year. Energy prices are still significantly higher than normal and are expected to rise again in the New Year as we mentioned above.

Food price inflation has also dropped to 10.1% in the year to October which is significantly lower than the 12.2% rate in September, and the March 2023 45 year record high figure of 19.2%. We’re still not seeing a direct impact on the actual physical costs of food at the tills which are still over 30% more than October 2021.

As we’ve seen in the past the last two base rate reviews, the current Bank of England mortgage rate has held at 5.25%. This comes as welcomed news to mortgage borrowers who have been hit with 15 consecutive increases from record low rates.

Economists have previously predicted an interest rate ceiling of anywhere from 5% to 6.5%, depending on how quickly the UK economy recovered. Signs from the past 3 months have started to show some levels of optimism among many financial experts, but we’re still far from being safe.

Mortgage rates from UK lenders have also started to fall to below 5% for many lenders with their 2 year fixed rate deals. The latest mortgage deals from the top six mortgage lenders in the UK have all dropped in the past month, the first time in over 12 months.

If you’re coming to the end of a special rate deal then it’s likely that you’ll be moving to a higher rate than you’ve had previously. Unfortunately, this is something that many mortgage borrowers are just going to have to deal with and come to terms with.

Mortgage rates are likely to stabilise for the next 12 months according to mortgage experts and our own mortgage specialists. Our own projections show that rates will remain at over 5% for the next 12 months, potentially another increase of 0.25% at the beginning of 2024.

Recommendations are suggesting that borrowers should consider fixing mortgage deals for 2 years and then hope to see lower rates at that stage.

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