Inflation falls to 16-month low – credit industry reaction

20th July 2023

Inflation fell to 7.9% in June, from 8.7% in May, according to the Office for National Statistics (ONS).

The price rises, as measured by the consumer prices index (CPI), at the lowest rate since March 2022. The fall in inflation exceeds analysts’ expectations, with a dip to 8.2% having been forecast. The ONS said falling fuel prices had driven the slowdown in inflation, with the fact that food prices are rising less quickly also having an impact. Core inflation, which does not include volatile price changes in food and energy, eased to 6.9%. The rate had been expected to remain unchanged at

Responding to the latest inflation figures, Joanna Elson CBE, Chief Executive of the Money Advice Trust, said “While today’s figures point to inflation slowing, sustained high costs have already inflicted severe damage on many peoples’ finances, including many callers to our National Debtline service. As ever, it’s those on the lowest incomes who face the hardest choices and are most at risk of difficulty as debts can quickly build up.”

“With millions of people now behind on essential bills, including energy and council tax, it’s vital the Government takes action to support people feeling the full effects of these high costs. This should include a Help To Repay scheme to help people with unaffordable energy arrears, and ensuring the benefits system provides enough for people to live on through an Essentials Guarantee. ”

 Simon Webb, Managing Director of capital markets and finance at LiveMore, said “Inflation is plodding downwards but it’s a painfully slow process reaching 7.9% in June. The main contributory factor is food inflation, which is still massively high at 17.4% although it is lower than the peak of 19.2% in March.”

“A slightly more positive statistic is the 0.2% fall in core inflation to 6.9%, which strips out food and energy prices, a welcome turnaround from successive rises over the previous three months. Whether this is enough to stall the Monetary Policy Committee decision to raise base rate yet again is debateable, but there are two members of the MPC who disagree with continual rate rises. The question is, will any of their other colleagues join them.”

Chris Daniels, Chief Commercial Officer of SmartSave, a Chetwood Financial company, said “Today’s data confirms what we already knew – inflation is not falling fast enough, and the Bank of England may have to raise interest rates again. For savers, the question is whether they would see the direct benefits of the next interest rate increase, or whether they will continue to see their savings losing value in real terms.”

“There is a huge gulf between the base rate and the rates available on many savings products. The larger banks, for example, are offering relatively low rates of between 0.9% and 1.75% on easy-access savings accounts. Fixed-rate products, particularly those not on the high street, are offering far higher returns. Those in a position to lock their savings away are likely to benefit from stronger returns and a better chance at protecting their money from the effects of inflation.”

“Market conditions are turning in savers’ favour, but people would still be wise to hunt out the best deals based on the amount they can set aside and how long for. While challenger banks currently topping Best Buy tables may be lesser known, they are covered by the same Financial Services Compensation Scheme (FSCS) protection as the bigger banks, meaning that savers can securely open a new account within minutes online to secure competitive rates.”

Sarah Coles, Head of Personal Finance, Hargreaves Lansdown “Falling inflation is set to ease price rise pain and mortgage misery. Inflation surprised forecasters, falling away faster than expected, and even super-sticky core inflation has dropped back. It’s great news for shoppers and homeowners, but may well have a sting in the tail for savers.”

“We’re already feeling the easing at the tills. We’re still having to dig deeper every time we venture near a supermarket, but we don’t have to brace ourselves quite so hard for bad news when the total is ringing up. Grocery inflation has dropped back very slightly from 18.3% to 17.3%, as lower wholesale prices and lower energy costs finally start feeding through to the shelves. We can’t guarantee the easing continues. There are still horrible geopolitical issues and weather phenomena, which could cause more spikes – the price of olive oil is still up 44.8% on the back of spectacular crop failure.”

“There was also more relief at the petrol pumps, as prices continued to fall. The massive step back in fuel inflation owes more to rises a year earlier than major movements in June. However, the price of petrol was an impressive 22.3% lower than a year earlier and diesel was down 24.3%, which will be great news for anyone hitting the road this summer.”

“Given this is coming on the back of worrying high wage inflation figures, the Bank of England isn’t going to step away from the interest rate rise lever just yet, so another hike may well be on the cards for August. However, falling inflation may mean the Bank isn’t tempted to lean so hard on this lever in the coming months, and this in itself is enough to move markets. Savers and mortgage borrowers won’t have to wait for the next rate decision for this to have an impact, because a change in expectations themselves would be significant.”

“For anyone with a variable mortgage, little will change in the immediate future. We’re still expecting more rate rises, so your mortgage is still going to get more expensive. If you moved onto a variable deal when your fixed rate expired in the hope that fixed rate deals would get cheaper, you’ll be paying for that decision.”