Dropped UK inflation to 3.2% may not bode well for potential interest rate adjustments
The British economy is experiencing a significant shift as inflation rates continue to decline, with food prices, particularly meats and crumpets, playing a significant role in this decrease. According to the Office of National Statistics (ONS), inflation rates fell from 3.4% in February to 3.2% in March. Economists are expecting a further decline in April, with some predicting a rate as low as 2%.
However, the Bank of England's next meeting to decide on interest rates is scheduled for 8 May 2024, and it remains uncertain whether the central bank will lower interest rates in the near future. Daniel Austin, CEO and co-founder at ASK Partners, believes that the Bank of England is likely to maintain interest rates for an extended period due to decreasing inflation rates.
The decline in inflation rates has brought mixed news for homeowners. While monthly mortgage bills are increasing, according to Rachel Reeves, the shadow chancellor, the decrease in inflation rates could potentially lead to a reduction in interest rates by summer, as suggested by John Glencross. A decrease in interest rates could bring a renewed sense of optimism for investors, consumers, and British businesses.
The Chancellor, Jeremy Hunt, has expressed belief that the plan to tackle inflation is working and that inflation is falling faster than expected. In his Spring Budget, he expressed confidence that the success achieved in tackling inflation will soon convert to economic growth, focusing on the strength of the UK's technology sector. Supporting British growth companies, as per the Chancellor, could help improve the near economic horizon by boosting GDP and increasing job creation.
In the property market, Austin predicts that as property loan extensions expire, borrowers may face the choice of injecting fresh capital, returning assets to lenders, or selling in a soft market. He believes that the assets hitting the market will offer opportunities for capital-endowed buyers to acquire assets at significant discounts.
Despite the overall decline in inflation rates, prices are still high in the shops, according to Ms Reeves. The drop in food prices has not been enough to offset the rising costs of other goods and services, leaving consumers struggling with high prices.
In summary, while inflation rates are declining in the UK, they are still elevated compared to the Bank of England's 2% target. The Bank of England's next meeting to decide on interest rates is scheduled for 8 May 2024, and it remains uncertain whether the central bank will lower interest rates in the near future. In the meantime, the decline in inflation rates has brought mixed news for homeowners and the property market, with some predicting a decrease in interest rates and others predicting a soft market for property sales.
The decline in inflation rates could potentially lead to a reduction in interest rates by summer, as suggested by John Glencross, bringing a renewed sense of optimism for investors, consumers, and British businesses in their finance and business activities.
However, some areas, such as the property market, may face challenges, with assets potentially hitting the market at significant discounts due to property loan extensions expiring, as predicted by Daniel Austin.
