The UK inflation rate has fallen sharply for the second consecutive month to 6.8%.
A reduction in the energy price cap and food costs rising less quickly are behind the drop, which drove the inflation rate down from 7.9% in June.
Prime Minister, Rishi Sunak, previously committed to bringing inflation down to 5% by the end of the year, a step on the road toward the Bank of England’s target of 2%.
In a video issued by the Treasury this morning, Chancellor Jeremy Hunt, said: “There is absolutely no room for complacency in the battle against inflation. While it is welcome that the headline rate of inflation has fallen, we now know that we have to stick to the plan to bring down inflation because that is causing enormous pressure on families up and down the country.”
Despite the inflation rate moving in a positive direction, it is still expected that interest rates will be raised again next month to keep it on a downward trajectory. This spells more bad news for mortgage holders and may deter potential house buyers as homes become less affordable.
Simon Webb, managing director of capital markets and finance at LiveMore, commented: “Inflation falling by 1.1% to 6.8% is good news but there is still a long way to go to reach the government’s 2% target. Once again the main reason was the fall in energy prices but it is still high.”
“However, core inflation is now higher than the main figure at 6.9%, which excludes the food and energy prices. Along with yesterday’s announcement of wages growing by a record 7.8% in Q2, it looks likely the next base rate decision will be another upward hike.”
Adam Oldfield, chief revenue officer at Phoebus Software, said: “Although it is in line with many predictions, it is good to see inflation come down below 7%. The hope was that it might get down to 5% by the end of the year, but there may be a couple of factors that will have had an effect when we see next month’s figure.”
“Prices at the petrol pumps have been going up this month which, along with rising wages, has the potential to push inflation up again next month. With this in mind, the Bank of England is highly unlikely to veer away from its current path, and another base rate rise is likely to be on the horizon.”
“For the housing market and mortgagers in particular this would be another blow, especially when we are already seeing arrears increasing. The recent rate cuts on fixed rates has given a bit of hope for some I’m sure, but there seems no respite for those that now find themselves on SVRs. Lenders will need to be canny to meet their lending quotas in the last few months of the year as borrowers face the dilemma of whether to fix now or wait.”
Group chairman of Cornerstone Tax International, David Hannah, commented: “The reported fall in inflation today is a positive step in the right direction. Coupled with the fact that wages have once again risen, it may mean that the future will not look as bleak as many expected at the start of the year. So far, the government’s aim to cut inflation is working, yet they have some way to go if they want to get it back down to 2%.”
“Concerningly, factors such as the unchanged rate of core inflation on goods and services mean that the average household is still experiencing enormous pressure.”
“Interestingly, with wages up and inflation falling, we have also seen house prices fall by 0.3% in July, and subsequently, three of the UK’s largest mortgage lenders have slashed interest rates on their mortgages.”
“Despite the fall in inflation, many are still expecting another Bank of England rate rise next month, which I feel would only serve to add to the already insurmountable pressure on homeowners.”
