Anyone thinking that yesterday’s inflation figures mark a likely turning point for interest rate rises might like to ponder how journalist Robert Peston neatly summed up the situation in a social media posting:
“With falling gas and electricity prices and a slight slowing (slight) in food-price inflation driving the fall in headline inflation from 7.9% to 6.8%, it is difficult to see how the rise in interest rates is having any significant dampening effect on price rises. So-called core inflation is unchanged at a high 6.9% and services inflation ROSE from 7.2% to 7.4%.
“The Bank of England will again have to put interest rates up in September, unless it has access to more up-to-date data that somehow proves that pay rises that on average are higher than inflation are now slowing.
“But it will have the biggest challenge to explain why interest rate rises of more than 4% have so far had so little impact, despite causing huge pain to hundreds of thousands of mortgage holders and other borrowers. This is perhaps the biggest credibility test it has faced.”
The independent think-tank, The Institute for Public Policy Research (IPPR) expressed a view that the recent increases in UK interest rates, to a 15-year high of 5.25%, could lead the economy into a recession.
Dr George Dibb, head of IPPR’s Centre for Economic Justice, said:
“It’s good news that headline inflation is lower, especially with energy bills coming down, but there is a very real risk that a recession may soon overtake price rises as the main economic concern.
“Other countries have brought inflation under control quicker than in the UK, with more support for households and workers avoiding unnecessary pain.”
The property industry gave its own reactions.
Tom Bill, head of UK residential research at Knight Frank:
“It has been a week of mixed signals for the UK property market. Falling headline inflation suggests a faint light at the end of the tunnel but stronger than expected wage growth and core inflation indicates the Bank of England will believe its work raising rates isn’t quite done yet.
“Some lenders are cutting rates, but for anyone buying, selling or re-mortgaging, it shows the upwards pressure on mortgage rates hasn’t gone away.
“That said, demand in the property market will continue to be supported by wage growth (which is now outpacing inflation), lockdown savings, the availability of longer mortgage terms, lender flexibility and the popularity of fixed-rate deals in recent years. We don’t expect a cliff-edge moment for prices but they will continue to come under pressure in the short term along with transaction volumes.
“The normalisation of rates was not unexpected but the journey has been bumpy. The previous government went too far, too fast for financial markets and the Bank of England has been accused of doing too little, too late.”
Frances McDonald, director of research at Savills:
“July’s inflation data will come as welcome news to prospective home buyers, who will hope to see further rate cutting by the major lenders in coming weeks.”
“With all signs indicating that the Bank of England base rate looks to be at, or very close to its peak, some of the affordability pressures should ease, bringing greater certainty back to the housing market.
“But, despite conditions steadily improving, markets are expected to remain price sensitive in the short term, with established prime markets most synonymous with equity-rich buyers likely to continue to outperform over the coming months.”
Nathan Emerson, Propertymark CEO:
“Even though house prices have fallen year-on-year, this does not compare to the dramatic price rises that we experienced last year. As house prices begin to steady, and with recent rises in wages, houses are becoming more affordable while equity is remaining stable.
“After positive inflation news has bought the potential for a peak in interest rates sooner than previously expected, there is also some hope that fixed mortgage rates will start to fall. Even as they remain high compared to recent standards, buyers are able to negotiate on price and come to a middle ground with sellers still able to make a healthy gain on the final sale price.”
Nicky Stevenson, Managing Director of Fine & Country:
“House price growth is cooling, but today’s fall in inflation sparks hopes that the economy is turning a corner, and bolsters the chances of the property market experiencing a soft landing.
“The biggest barrier to sales is the cost of mortgages, but competition for borrowers has seen lenders drop rates in recent days, which may trigger another flurry of activity.
“The Bank of England may also be nearing the point where it presses pause on further base rate hikes, which would bring greater stability to mortgages and, in turn, promote more confidence in the property market.
“The resilience of the housing market can partly be attributed to a pool of motivated buyers who continue to bid for reasonably priced properties.”
Nick Leeming, Chairman of Jackson-Stops:
“It is worth noting however, that year-on-year house price growth remains positive at 1.7%, or £5,000 more than 12 months previous; a nod to the UK property market’s remarkable resilience. A lack of supply and a steady flow of cash buyers are working to maintain wider momentum against a bumpy economic outlook.
“This week we also heard the news that the economy grew by 0.5% in June, and 0.2% overall in Q2, outpacing the 0.1% growth recorded in the first quarter. This gives us wider hope that steadier times are ahead for consumer confidence, with mortgage rates finding their new normal and inflation slowly being tamed.”
