Inflation predicted to fall faster than expected

Inflation predicted to fall faster than expected

Inflation has finally started to fall and the Bank of England recently forecast that it’s expected to drop to 5% by the end of 2023. Experts, however, have since predicted that inflation will fall faster than that. A drop to 4.6% by the end of the year has been forecast. With this prediction, however, new fears of a recession have resurfaced.

The current inflation rate

The Bank of England has been trying to combat the high inflation rate with continual base rate increases. So far, there have been 14 consecutive increases since December 2021, with the rate currently set at 5.25%. It typically takes between 18 months and 2 years for the effects of base rate changes to make an impact. The goal is to get inflation back down to the target rate of 2%.

Last October, inflation hit a 41-year high as it rose to 11.1%. However, in June, it dropped to 7.9% and in July it dropped again to 6.8%. So far, inflation on core goods has met the forecasts, food prices are beginning to stabilise and the price cap on energy prices will be reduced in October. Although the Bank of England has predicted an inflation rate drop to 5% by the end of the year, economists at Deutsche Bank believe that the rate will decrease further to 4.6%.

As the effects of the base rate increases will take time to filter through, Deutsche Bank’s economists feel that it’s unlikely the Bank of England will make too many more increases. This is because of the risk of recession.

Why are there fresh concerns over a recession?

There have been continual warning signs of a recession but, so far, a technical recession has been avoided. However, there are renewed concerns over a recession in the UK. The continually increasing interest rates have resulted in many households struggling to cope with daily living expenses. This factor, combined with slow wage growth, has led to an increase in unsecured borrowing.

Currently, the amount of unsecured debts is rising quickly in the UK. Taking on this type of debt is seen by many as the only solution to be able to afford to pay the high energy bills, food costs and mortgage or rental payments.

As well as these factors, unemployment is rising. The National Institute of Economic and Social Research (NIESR) has predicted that it will continue to do so significantly within the next 2 years.

Will lower inflation affect mortgage rates?

As inflation is now coming down, one question that’s increasingly asked is when mortgage rates will start to come down. In some cases, they already have. Some of the UK’s biggest lenders have reduced their rates in light of the decreasing inflation rate. It’s hoped that these lenders will go on to make further rate reductions. Other lenders will hopefully follow their examples and start reducing their rates too.

For details of the rate reductions and to find out whether you can benefit from a better mortgage deal, give our expert brokers a call on 01322 907 000. They will compare your current deal with suitable alternatives to find out whether you can save money on your mortgage payments and take advantage of better terms.