Inflation hits Bank of England's 2% target

The UK’s inflation rate has reached its target of 2%¹. With being a significant milestone for the first time in three years, this pivotal moment brings many questions concerning homeowners and how this might impact the potential buyer. The economy has been a key issue in recent elections, with all political parties struggling to present plans for managing the escalating cost of living, and while the dropping inflation affects many, how exactly, is the question that remains.

Food prices drop, but challenges are here to stay

Food prices continue to drop together with the reduction in prices of furniture, cultural events and all household goods that will play a part in the downward trend. Between April and May, the price of bread, jam and chocolate fell which contributed to reaching the 2% target. There is no doubt that this is all positive news, however we mustn’t forget that food is still 25% higher than what it was back in 2022¹. This has the biggest impact on household budgets across the country.

Petrol price ripples

The petrol we use in our cars plays a key role too and it has had its share of movements. Between April and May, there was an increase of 0.7p per litre¹ which rocked the economy out of its stability. It influences anything from commuters, transporting goods across countries, and taking holidays across continents. On the other hand, diesel prices have dropped by 0.8p per litre during that same period¹ which emphasises how the fuel prices are dynamic and how they have a different impact on different sectors of the economy.

Homeowners on hold

For homeowners, whether first-time buyers or those already climbing the property ladder, the inflation figure has a significant impact, especially as it reached its target just before the Bank of England's latest decision on interest rates. With a 16-year high, there are no plans of the Bank of England to reduce the current rate of 5.25%¹ which has a considerable impact on mortgages. This has affected affordability, borrowing costs and making the big decisions related to your property purchase. An interesting fact is, it was expected that the rate would drop together with all other price decreases, however due to the high inflation rate in the services sector (5.7%)¹ the potential for rate cuts has shifted.

The ongoing challenges for UK mortgage holders

If you are a mortgage owner, all this means is that you won’t see an immediate reduction in interest rates. The Bank of England is looking for sustainable evidence that inflation and the economy are under control before considering any change. Although the target of 2% has been reached, this does not mean there are no more challenges ahead. The price of food in the UK is still a concern to many and the high interest rates still have a profound impact on the mortgage market, affecting those who have already borrowed and those looking to buy.

Sources

1.    https://www.bbc.co.uk/news/articles/cjrrk8j7pwxo

All the information in this article is correct as of the date of publishing. The opinions expressed in this publication are those of the authors Euxton Mortgage Market. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

July 2024