Inflation fall could have a ‘sting in its tail’ for interest rates

After today’s inflation reading, the UK still has the highest inflation in the G7, and experts predict that Bank of England policymakers will now be setting the scene for another rate hike on 3 August, following the increase to 5% last month.

Peter Stamford, director of Alston-based Moor Mortgages, said: ”For the sake of millions of homeowners, I sincerely hope that this will mean a pause in the Bank of England’s interest rate hikes. But I fear they will see this fall as proof their blunt-edged strategy has been working and continue to hike. This fall in inflation could have a sting in its tail regarding interest rates.”

Continued high inflation and interest rates will “continue to hit developers hard and we are likely to see starts, especially within London, fall considerably”, according to Marc Vlessing, chief executive of affordable homes developer Pocket Living.

Meanwhile, Giles Coghlan, chief market analyst, consulting for HYCM, added that “core inflation continues to be a thorn in the central bank’s side at 6.9%, highlighting the risk that domestic inflationary pressures are here to stay for now”.

The Office for National Statistics’ Consumer Price Inflation figures show that the Consumer Prices Index (CPI) including owner occupiers’ housing costs (CPIH) rose by 7.3% in the 12 months to June 2023, down from 7.9% in May. On a monthly basis, CPIH rose by 0.2% in June 2023, compared with a rise of 0.7% in June 2022. The CPI rose by 7.9% in the 12 months to June 2023, down from 8.7% in May.

Nathan Emerson, chief executive of Propertymark, said: “As core inflation remains sticky, it is increasingly likely that the Bank of England will consider further interest rate rises. This has obvious impacts on mortgage holders, new and old.”

However, Emerson highlighted that Propertymark, the UK’s professional body for estate and letting agents, is seeing a “good amount of resilience in the market and serious buyers will continue to make a gain on the price achieved whilst sellers find a happy medium when negotiating the final agreed sale price”.

According to property experts, savvy investors may benefit from distress over rate hikes.