GOING DOWN
UK inflation rate drops to 4.6% in October – what it means for your money
Inflation is now at its lowest level in two years
FAMILIES have finally had some good news with inflation falling to the lowest level for two years.
The annual rate at which prices rise was 4.6 per cent in the year to October, down from 6.7 per cent in September.
1
It means Prime Minister Rishi Sunak has hit his target to halve inflation, a promise he made at the beginning of the year amid the cost of living crisis when the rate had hit 10.7 per cent.
He said: “Inflation works like a tax. It eats into the pound in your pocket, affecting the price of your food shop, your mortgage, the size of your pension pot.
“This is why halving inflation has been my number one priority. Getting it down has involved hard decisions and fiscal discipline.”
But analysts warned ministers can take only so much credit because of the dramatic fall in energy costs.
READ MORE IN MONEY
Prices were capped at £2,500 last year for the typical household but this now stands at £1,834.
Food inflation also fell to 10.1 per cent, down from 12.2 per cent in September. In March, it had hit a 45-year high of 19.2 per cent.
The Office for National Statistics said that milk, cheese and eggs had steadied the most, with their average rate of inflation easing to 7.9 per cent, down from 12.3 per cent.
The fall in inflation has encouraged economists to bet that the Bank of England will have no reason to raise interest rates higher and could start cutting them in May.
Most read in Money
High street lenders have already started to lower the price of home loans and experts said that mortgage rates should start to fall further in the coming days.
However, the IPPR think tank warned that the fall in inflation did not mean lower prices, which were “still rising, just not as fast”.
What it means for your money
High inflation means that the cost of everyday essentials is rising and therefore your money doesn't go as far.
When inflation drops it doesn't mean that prices have stopped rising it just means that they are rising at a slower rate.
Alice Haine, personal finance analyst at Bestinvest, said: " Softening inflation is positive news for households as it means incomes might be less stretched than they have been.
"Some households are already taking comfort from bumper pay rises, as average wage growth is now outstripping inflation, so a retreat in price rises might feel like a double win.
"However, the boost to their purchasing power should not be considered a signal to loosen household budgets. "
The Bank of England (BoE) and the UK's central bank can hike its base rate to try and bring inflation down.
This is good news for people who have savings, as they might see a boost.
It is bad news for homeowners, as it also means interest rates on mortgages rise meaning more pressure for homeowners.
But falling inflation offers some home to mortgage holders and prospective buyers, who will be hoping for interest rate cuts.
The Bank’s Monetary Policy Committee (MPC) held the base rate at 0.25 percentage points to 5.25% earlier this month.
This was the second time in a row that the bank decided to hold the base rate, easing pressure on homeowners facing rising mortgage rates.
Interest rates could be cut by the Bank of England as soon as May, experts are now predicting.
Analysts at Wall Street financial services giant Morgan Stanley said falling energy costs will bring down inflation — paving the way for reducing the current high of 5.25 per cent.
The US bank predict rates could be a full point down to 4.25 per cent by the end of next year.
The Central Bank will meet again on December 14.
David Hollingworth, associate director at L&C Mortgages said: "Two year fixed rates have edged below 5% in the last couple of weeks, with major players like Halifax and HSBC joining the leading pack today.
"Five year rates are nudging closer to 4.5% and could dip below that mark in coming weeks.
"I’d expect to see more lenders following the more sharply priced competition and improvements look set to continue.
READ MORE SUN STORIES
"That will be welcome news to borrowers that were facing substantially higher rates only a few months ago, although those coming to the end of an ultra low fixed rate will still be seeing a sharp rise in payments.
"Shopping around and taking advice will remain the name of the game in a shifting market.”
You can also join our new Sun Money to share stories and tips and engage with the consumer team and other group members.
Topics