Inflation holds steady – consumer credit industry reaction

Inflation in the UK remained unchanged at 2.2% in August, according to the Office for National Statistics (ONS), aligning with economists’ predictions. However, core inflation increased to 3.6%, up from 3.3% in July.

The Bank of England, which recently cut rates for the first time since the pandemic, is expected to proceed cautiously due to ongoing inflationary pressures. With regular pay growth exceeding 5% and unemployment at 4.2%, the labour market remains tight. The Bank’s forecasts indicate inflation could rise to just under 3% by year-end as the impact of lower energy prices diminishes.

Commenting on inflation figures for August, Lalitha Try, Economist at the Resolution Foundation, said “Inflation held steady in August, with even Taylor Swift’s arrival in London failing to move the dial on price changes. Disappointingly, services inflation rose after a surprise fall in July, with prices now back in line with the Bank’s expectations.

“Amid a busy period for central banks, with the Fed gearing up for its first interest rate cut in years following a cut by the ECB last week, it’s likely to be a steady-eddie week for the Bank of England.”

Andy Mielczarek, CEO of Chetwood Financial, said”Inflation holding steady after recent sharp drops is a further shot in the arm for both consumers and businesses. Indeed, this relative period of calm sets the stage for continued recovery and brighter economic prospects.

“The Bank of England will still be watching closely, but with inflation stable, today’s figures are unlikely to prompt any major shifts in their short-term strategy. Striking the right balance on interest rates is complex, but we’re hopeful they can maintain this positive momentum.

“Consumers can take comfort knowing we’re much closer to the Bank’s target rate than we were a year ago. Prices may still be high, but rising wages should start to ease the pressure. Meanwhile, savers could still capitalise on higher fixed-term rates before potential cuts arrive.”

Alastair Douglas, CEO of TotallyMoney said “With inflation relatively stable, and far lower than it was even a year ago, high street banks have been quietly cutting their rates in anticipation of the Bank of England reducing theirs. And this means that if you’re one of the two in three people sitting on savings, your cash could be earning less interest than it should.

“Things could be worse if your money’s with one of the big banks. They’re paying an average of 1.64% on easy access savings — while you can get more than 4.80% elsewhere. Which in real terms means a difference of £550 lost income per year. So do your research, and look at switching who you bank with — because loyalty doesn’t pay, but moving your money can.

Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown said “The Bank of England is likely to keep a wary eye on core inflation and hold rates tomorrow, but cuts are still being priced in this side of Christmas. This has been taking a toll on savings rates, and aside from one hold-out in the 1-year fixed rate market, fixed rates have now largely fallen below 5%. You can still get 5% or more in couple of easy access accounts. However, with more cuts on the cards, it’s time to take stock of whether you actually need all this money close to hand. You should have easy access savings to cover 3-6 months’ worth of essential spending while you’re working age and 1-3 years’ worth in retirement, but for any cash you’re holding beyond this, it’s worth considering tying it up for the periods that make the most sense for your finances.

“There are some really strong deals around, especially on short-term fixed rates, so you can still lock in a great rate. Don’t feel you have to pick a single account. If you need sums at various points over the next five years, you can take a mix-and-match approach, using different banks, savings accounts and cash ISAs for different periods, to build the savings mix that suits you. If you worry that you’d lose track of more than one or two accounts, you can consider a cash savings platform, where you can manage it all in one place.

“Mortgage borrowers on tracker rates are highly likely to have to wait a while longer for the next cut in their monthly payments, and while there are still cuts priced in for 2024, they may well be wondering whether higher core inflation risks throwing more cuts into question in the coming months. It demonstrates just how much uncertainty is involved when you peg your biggest monthly cost to a variable rate.

“InFor those looking for a new fixed rate, or with a remortgage looming, there’s better news, because mortgage rates have been on their way down. This time last year the average 2-year fix was 6.6%, whereas now Moneyfacts figures show it’s 5.48%. It’s one reason why mortgage approvals have risen, and buyers are returning to the market. For anyone counting the days to a remortgage, the news is better too. The HL Savings & Resilience Barometer shows that remortgagers are likely to be moving from a rate of 2%-2.5% to one under 5.5%. It’s still a doubling of the rate for many people, but given that some remortgagers faced a tripling of their rate overnight when rates were surging, they may well be counting their blessings.”