Inflation Falls to Lowest Levels Since September 2021

Inflation Rates

In October 2022, inflation hit the highest rate for 41 years, 11.1%. However, at the start of 2024, it was 4% and has further fallen to 3.4% in February. This is the lowest rate since September 2021, when levels began increasing rapidly.

Inflation began to fall due to the price decrease in goods, such as the lower cost of energy prices compared to previous years, and the slower increases in the cost of food in recent months. The Bank of England predicts that inflation will continue to fall. They expect rates will drop below the 2% target in the middle of 2024.

Consumer Prices

Falling levels will not undo the previous increase in prices. In 2017, the Consumer Prices Index (CPI), became the main inflation indicator in the UK. Consumer prices were 21% higher compared to 3 years prior. CPI measures inflation rates by tracking the changes in prices paid by consumers for a basket of goods and services over time. It measures everyday goods and services, like food, fuel, housing, transportation, and clothing.

Service prices

When deciding the Bank of England rate, the Monetary Policy Committee also considers other rates that reflect costs to consider, such as wages. These measurements have not fallen as much as the overall inflation rate.

One measure that is considered is the level of price for services. This fell from 7.4%, a 31-year high in mid-2023, to 6.1% in February 2024 but remains high. The Monetary Policy Committee is concerned that if services rates don’t continue to fall further, the overall rate might stay above the 2% target. However, after the latest meeting, Bank of England’s Andrew Bailey seemed confident that the downward trend in services inflation would continue.

Will Interest Rates

Be Cut?

The Bank of England governor has indicated that markets are correct to assume there will be more than one interest rate cut this year, he stated he is increasingly confident inflation is heading towards target.

Rates have risen from 0.1% in December 2021 to the current rate of 5.25%. The rate is at its highest level since 2008. Consequently, there has been limited economic growth due to the reduced demand for goods and services. The committee has since left rates unchanged, including at the March meeting.

According to The Guardian, economists predict that the Bank of England’s Committee will respond to falling inflation by reducing its standard interest rate from 5.25% to 4.5% by the end of 2024. The first-rate cut is expected to occur after policy meetings in June or August, but expectations can quickly change.

What Does This Mean For The

Property Market?

When inflation decreases, the Bank of England may cut interest rates to stimulate economic activity. Lower interest rates can lead to cheaper borrowing costs, making getting a mortgage more attractive. This will boost market activity in the coming years. As inflation decreases and the cost of living stabilises, more people will have a larger disposable income to afford the mortgage payments, with a smaller payment on the interest.

When inflation is reduced to its predicted point, many buyers will be looking for properties at the same time to access the low-interest rates and stable market which will then lead to a large growth in demand. It could also lead to many houses that are listed on the market to continuously grow in value over time. As there is a growth in demand and buyers are willing to pay more for a house due to a smaller interest payment.

Another effect of decreasing inflation is that property values are likely to stabilise or grow at a slower rate, creating more security and reducing the risk of a property bubble. Investors can feel more confident about long-term investments knowing the market is more stable.

Rent prices will also become more stable which will attract many new renters who previously did not want to take the risk but can not yet afford to buy. This means landlords will receive more interest from potential tenants. This benefits investors as it will create a more stable and reliable income for investors.

Overall, the decrease in inflation can lead to a cut in the BoE base interest rate, increased affordability for loans, a stabilised property market, a more secure rental market, and steadier returns for investors. This combination of factors can create a more sustainable and attractive property market in the future years.

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