Driving down inflation: What the decrease really means

There is more good news for the property market as the UK inflation rate falls again!

Following the positive announcement of the decrease in June, the rate of inflation has fallen for a second consecutive month. Now at 6.8%, the Office for National Statistics confirms it’s the lowest rate in a year leading up to July. 

One of the Prime Minister’s, main goals for 2023 is to reduce the rate of inflation. At its peak of 10.7% between October and December 2022, the halfway mark is now in sight. Whilst we may get closer to the Government’s target than many first believed, there is still a long way to go.

What caused inflation to go down?

Remember, inflation measures the rate at which the cost of goods and services is rising. Although the rate itself has fallen, prices are still going up but at a slower speed than they were previously. The biggest contributor to this is a drop in energy prices, with a considerable fall in gas and electricity prices. The rate at which food prices are rising also slowed and helped to drive the fall in inflation. Whilst the cost-of-living crisis remains and many families are experiencing the challenged that it brings, the economy is showing early signs of easing.

What does the government have to say about it?

Rishi Sunak says the latest inflation drop shows the plan is working. “As prime minister I am determined to build a better economy and a better country for you, your children and your grandchildren,” he said. “That starts with tackling inflation. And the news this morning shows that the plan is working. If we stick to the plan I’ve set out, we’ll get it done.”

Chancellor of the Exchequer, Jeremy Hunt, appreciates the reduction but acknowledges that there is more work to be done. “The decisive action we’ve taken to tackle inflation is working, and the rate now stands at its lowest level since February last year,” he said, “but while price rises are slowing, we’re not at the finish line. We must stick to our plan to halve inflation this year and get it back to the 2% target as soon as possible.”

How will this affect the property market?

As inflation has reduced, there will be less pressure on the Bank of England to significantly increase the base interest rate. Home Legal Direct’s COO, Oliver Meddick, comments: “Although a rise of the base rate is expected, we may be surprised to see by how much, or more likely, how little. As more lenders continue to bring down their own rates, you can see confidence returning to the market. It may be a waiting game to find out how the Bank of England will respond, but whilst we are waiting, the market will keep moving which is a positive sign of more good things to come.”

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