FINALLY some good news! After more than a year we look like we’re over the worst.
Petrol and diesel costs have dropped by a fifth, which took headline inflation down from 8.7 per cent in May to 7.9 per cent in June.
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Experts had said it would stay at 8.2 per cent.
Core inflation — which strips out more volatile food and fuel prices — also fell, from 7.1 per cent to 6.9 per cent.
Last month an unexpected core inflation rise shocked the markets.
Traders had bet the Bank of England would have to keep increasing interest rates, piling on more misery for mortgage holders and borrowers.
So today’s inflation fall is a welcome surprise — it should mean the Bank won’t have to be as aggressive.
Mortgage rates should start coming down within a week.
Experts at Pantheon Economics called it a “watershed moment” and predict the Bank will raise interest rates by just 0.25 per cent, rather than the priced-in 0.50 per cent.
Last week it was expected that rates could peak at 6.75 per cent, but the market now forecasts 5.75 per cent.
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We should not get carried away, though. We are still paying more than a year ago.
Our inflation is some two and a half times that of the US, above the Eurozone’s 5.5 per cent and nearly four times the Bank’s two per cent target.
Fewer than a third of people have a mortgage, with a fifth owning outright and the rest renting.
Rents, already at record highs, are rising by 5.1 per cent.
Buy-to-let landlords are passing on higher mortgage costs to tenants or selling up.
But let’s not lose hope. Inflation stats are still slightly warped by Ofgem’s price cap, which is keeping household gas prices more than a third higher than a year ago.
They do not have the same cap in Europe and inflation has fallen more sharply as energy prices have dropped.
As the cap falls below £2,000 towards autumn, inflation will naturally reduce further, giving households, Government and the bank more breathing room.
