Inflation has finally fallen to 4.6 per cent which is better than expected according to the Office for National Statistics (ONS). This is the lowest rate of inflation we have seen for two years.
Inflation has Finally Fallen
This means that the Prime Minister has hit his target of halving inflation, which he pledged in January. Mr Sunak said: “While it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle, which is why we must stay the course to continue to get inflation all the way back down to two per cent.”
Why Has Inflation Fallen?
Inflation has finally fallen because energy prices have fallen. The Bank of England says “main driver of the expected fall…. is a reduction in the Ofgem energy price cap, reflecting the decline in wholesale gas prices over the course of 2023.” The change in the Ofgem price cap means that the cost of gas fell by 31 per cent for the year to October. However, the price of gas remains approximately 60 per cent higher than it was in October 2021, with electricity about 40 per cent higher, according to the ONS. Most households will be paying higher bills despite the fall as a result of less Government help. The Energy Price Guarantee was removed alongside the additional £66 per month that was taken off households bills over last winter. The rate of inflation for food and drink has slowed but remains high, at 10.1 per cent. This is down from 12.2 per cent in September and from the high of 19.2 per cent in March.
This means that whilst food prices are still rising, they are at least rising more slowly. Food prices will continue to fluctuate according to world events such as Ukraine and Gaza. However it is expected that we have passed the peak experienced in 2023.
What Happens Next?
It is forecast that inflation will continue to fall despite slowing down and it will take some time longer before the Bank hits its target of two per cent, which it hopes to achieve by the end of 2025.
Mortgages, Savings and Pensions
Currently lenders are dropping rates to increase competition in the market because fewer people are choosing to take out loans in the current economic climate. Mortgages are not directly affected by inflation, although consumer behaviour can show an effect in the market, because many other financial products are affected by the Bank of England’s base rate, which is influenced by inflation. High inflation is not good news for savers because it erodes the value of money held in the bank. So falling inflation rates will be welcome. Plus there may be deals to be taken advantage of at the moment. Pensioners will welcome the news that inflation has finally fallen, affecting the value of their savings in the face of the cost of living crisis.
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