inflation CPI

Inflation news is a “step in the right direction” for the market

A reduction in energy prices has caused a steep fall in headline UK inflation, and now could be a ideal time for investors to check the health of their portfolios.

The latest figures from the Office for National Statistics have revealed a drop in the consumer price index (CPI) from 7.9% in June to 6.8% in July, which is in line with most economists’ expectations. It also brings inflation down to its lowest rate since February 2022.

While the current rate is still well above the government’s overall target of 2% – and its 5% target by the end of 2023 – Chancellor Jeremy Hunt believes “the decisive action we’ve taken to tackle inflation is working”, but we must “stick to our plan to halve inflation this year”.

In anticipation of today’s news, more than a dozen UK lenders have decided to reduce rates on their fixed rate mortgage products, which is the fourth consecutive week that lenders have dropped their prices.

The next key dates for inflation

As Paresh Raja, CEO of Market Financial Solutions, points out, the 20th and 21st September will be the next crucial dates when it comes to assessing inflation and interest rates, but for now we should “allow positivity to permeate” back into the property market.

“Another step in the right direction, with today’s CPI drop following on from the smaller-than-expected base rate hike at the start of the month. But it might be a case of two steps forward, one step back; all the talk this week has been that we are in for a shock rise in inflation when next month’s data comes out on 20 September.

“Given the Bank of England’s next interest rate decision follows the next day (21 September) that will likely prove a hugely important 48 hours.

“For now, we should allow some positivity to permeate back into the property and lending markets. After a challenging 18 months, any time inflation falls should be welcomed, and we could see such good news reflected in the products and rates available to property buyers.”

What should investors do?

With the UK’s economic short-term future still uncertain, it can be a difficult time for investors to assess the best course of action. Property investors who rely on borrowing for their investments are being urged to keep an eye on their positions and to diversify where possible.

Jatin Ondhia, CEO of Shojin, said: “Even with today’s fall, inflation remains high, and if indeed it does rise again next month, we have to expect the Bank of England to come hard with more interest rates hikes. As borrowing becomes more expensive, this will inevitably further impact house prices and property development.

“For investors, meanwhile, it is crucial they assess how well positioned their portfolios are to deliver returns amid stickier-than-expected inflation.

“Diversification will likely remain a watchword for investors. Predicting quite where interest rates and inflation will go in the months to come is difficult, so many people will opt to diversify their investments so they are not tied too closely to any particularly market forecasts.”

Savers may want to switch deals

Despite climbing interest rates, lenders are not always passing on the full scope of rises to savers. According to data from Moneyfacts, the number of savings deals outpacing inflation has not changed since last month – not a single standard savings account outpaces the 6.8% inflation rate.

Inflation has an “eroding impact” on savers’ cash, says Moneyfacts finance expert Rachel Springall, and many savers will benefit from locking into a deal that pays monthly interest if they wish to supplement their income.

“Savers must ensure they keep on top of the changing market and switch if they are getting a raw deal,” says Springall. “The savings market is benefitting from provider competition within the top end of the market, but also from consecutive base rate rises, so it’s vital consumers take time out to compare the latest offerings.

“However, there has been notable volatility across fixed bonds in recent weeks. Inflation still has an eroding impact on savers’ cash, but they can at least secure a higher interest rate to mitigate its impact.

“Those savers looking to maximise the interest they earn on their savings will find one-year fixed rate bonds are currently paying the top rates.”

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