Inflation remained at 6.7% in September for the second month in a row. Food inflation fell month on month for the first time in two years but rising prices at the fuel pump have been cited as a key factor for the surprising stickiness.
The latest figures have been received with some disappointment within the industry.
LiveMore managing director of capital markets and finance Simon Webb points out that while the annual Consumer Prices Index (CPI) inflation has stalled again and remained stubbornly at 6.7% in September, other elements of the inflation figures have also not budged.
“The Consumer Prices Index including owner occupiers’ housing costs (CPIH) also stayed where it was last month at 6.3% as did core CPIH at 5.9%, which excludes energy, food, alcohol and tobacco. The only minor shift downwards among these four inflationary figures was core CPI at 6.1%, down from 6.2% in August. This was mainly due to goods such as food falling slightly but services like transport were up”.
Webb adds: “Whether this is enough to stave off another base rate rise next month is debateable and no doubt the next Monetary Policy Committee meeting will be a hive of debate. The last meeting was as close as it gets with members voting five to four in favour of keeping base rate at 5.25%. With average wage growth exceeding inflation, for the first time in nearly two years, the MPC may decide to raise rates again, which is not what we want to see.”
AJ Bell investment director Russ Mould takes a similar line: “Sticky inflation strengthens the argument for further interest rate hikes, which in turn adds to pressures for consumers and businesses,”
L&C Mortgages associate director David Hollingworth says that given the expectation for inflation to fall more sharply as the year goes, this may have little impact on mortgage borrowers, despite not being as positive news as hoped for.
“Unless the markets see this as changing the likely direction for base rate it is likely to be a case of steady as it goes.
“Fixed rates have been falling since the outlook for base rate eased and following the decision to hold base rate in September. Although rates have continued to edge down, the pace of those changes has slowed.
He adds: “Borrowers that are holding out for lower rates as they approach the end of their current deal may be better to secure a rate and then keep a close eye on rates over time. That will still allow them to take advantage of any further falls but allow them to lock in a fix up to 6 months early.“
Mortgage Advice Bureau deputy CEO Ben Thompson believes inflation remaining unchanged adds more pressure on the Bank of England to hold interest rates where they are – at least for the next announcement.
While rates remain high in comparison to recent history, the rates on offer from a host of big lenders have already reduced to sub 5%. However, as swap rates harden and the possibility of higher for longer interest rates sets in, it is unlikely that these rates will drop further anytime soon”.
