In a surprise move, the UK recorded a sharp drop in inflation in October. The Consumer Price Index (CPI) most recently showed that annual rate at 3.6%. This is an increase from 3.8% over the month earlier. Here’s why homeowners and homebuyers can breathe a sigh of relief as they try to make sense of today’s mortgage rates. When it comes to everyday consumers, and especially ordinary Americans worried about climbing food prices, the overall decline tells a much more complex story.
The UK‘s Office for National Statistics (ONS) produces the monthly inflation rate, which has shown extreme volatility in recent years. In January 2020, consumer price index inflation in the UK stood at 1.8%. By the end of 2020, it dropped near 0% when the pandemic shut down much of the economy. This calculus was turned on its head when inflation peaked at 11.1% in October 2022. This sudden increase set the crisis cost of living on an ever-escalating alarm.
At present, the most recent figures indicate that UK inflation is beginning to plateau, instilling optimism that inflation might have hit its high point. “Inflation remains well above the Bank of England’s happy place of 2%,” remarked Alice Haine, emphasizing that while there is progress, more work is needed to bring inflation down to acceptable levels.
The decline in inflation should bring advantageous shifts in the price of borrowing. Attracting mortgage capital mortgage rates should stand to gain from this trend, providing cheaper and more accessible homeownership to existing homeowners and first-time homebuyers. It means the average rate for a new two-year fixed deal has fallen to 4.88%. At the same time the average rate for a five-year fixed deal has fallen to 4.93%. David Hollingworth noted, “There has been particular emphasis placed on rates for home movers with some of the best rates available for purchases.”
While borrowing costs have decreased, UK citizens are still concerned about skyrocketing food prices. This unfortunate reality is still all too true for many. The cost of bread, meat and potato has more than doubled. Can you believe this change took place in less than a month! Danni Hewson pointed out that “staples like bread, meat and potatoes all cost more than they did even a month ago,” indicating the ongoing struggles faced by consumers at grocery stores.
The Bank of England has acknowledged that “concerns about rising food costs and utility bills still dominate conversations,” highlighting the dual challenges posed by fluctuating inflation rates. The recent pullback in inflation could help provide some relief within the housing market. It doesn’t remove the pressure on family wallets in terms of food costs.
Considering that inflation rates are likely to keep fluctuating in 2023, it’s more important than ever for consumers to stay alert to their financial choices. The possibility of a sixth interest rate cut since August last year looms as policymakers evaluate the broader economic landscape. Finally, don’t forget that the CPI inflation rate is only one of many factors influencing lenders’ decisions about what mortgage rates should be. Other major factors are involved too.