UK record drop in inflation for June

The UK recorded a decrease in the rate of inflation for the month of June, which even caught some experts by surprise. The rate of inflation in June was recorded as 7.9%, which is a 0.8% decrease from May’s 8.7% figure. This means that the UK is currently experiencing inflation at its lowest rate in more than a year.

What caused inflation to come down?

Experts are pinpointing cheaper fuel prices as one of the main reasons for the slowing of inflation. The Office for National Statistics (ONS) also stated that food prices appear to be increasing at a slower rate. However, the June figure can also be attributed to other factors that occurred previously and have only just caught up in the data.

The UK still has one of the highest inflation rates compared to the USA where inflation is just 3% and the Eurozone where it has been calculated at 5.5%. In fact, the UK has the highest rate of inflation among the G7 Nations.

Does lower inflation mean things are getting cheaper?

Unfortunately no - inflation is a measurement of how prices are increasing. Thus, prices are still increasing but they are doing so at a slower rate than previously. It’s a good sign nonetheless as we get closer to the optimal rate of inflation perceived by the Bank of England. which is just 2%. The inflation rate for June is almost quadruple the central bank’s target and therefore inflation still needs to be managed.

So, will interest rates increase in August?

The Bank of England (BoE) has risen interest rates significantly over the last year. The base rate of interest - which is the interest the banks pay to borrow from the BoE - has gone from almost 0% to 5% currently. The idea is that raising rates will encourage people to save more and spend less, which drives down competition and causes businesses to lower prices to win customers and clients. It’s not the only way of managing inflation, and it has been challenged and criticised when solely relied on as a way to reduce inflation.

Despite inflation almost dropping by a full percentage point, the Bank of England is still expected to increase interest rates in August from 5% to 5.25%. However, the predictions are more favourable for mortgage borrowers thereafter. Experts are predicting fewer immediate rate hikes for the rest of the year, which will peak around 5.5%. Before the June result, those predictions anticipated the peak to reach 6%, so overall it is better news for homeowners.

Mortgage help is available

Nevertheless, anyone with a variable-rate mortgage should expect their repayments to increase in the coming months. If you’re worried about repaying your mortgage, you can get advice from our team. We can explain the support that has recently been made mandatory and assess your remortgaging options to find cheaper deals.

July 2023