The UK's inflation rate has fallen to 4.6% in October, according to official figures from the Office for National Statistics (ONS). This marks a decrease from September's rate of 6.7% and puts inflation at its lowest level in two years. The government is now on track to meet its target of halving inflation by the end of the year.
Reasons Behind the Decrease
Grant Fitzner, chief economist at the ONS, explains that inflation dropped significantly in October due to a reduction in energy costs and stable food prices. Last year's steep rise in energy costs was followed by a small reduction in the energy price cap, contributing to the decline. Additionally, hotel prices fell, further pushing inflation to its lowest rate in two years.
Understanding Inflation
Inflation is a measure of how the price of goods and services has changed over the past year. It has decreased since reaching a 41-year high of 11.1% in October of last year. The largest factor behind the slowdown in inflation was house prices, which saw the lowest Consumer Price Index (CPI) rate since records began in 1950. Falling energy bills and retreating food inflation also played a role in the decline.
Prime Minister's Response
Prime Minister Rishi Sunak expressed satisfaction with the decrease in inflation, stating that it was his top priority to halve inflation this year. He believes that lower inflation eases the cost of living and provides financial security for families. Sunak is keeping his promise to lower inflation to around 5.4% by the end of the year.
Impact on Your Money
High inflation means that the cost of everyday essentials is rising, making it more difficult for your money to stretch. While a drop in inflation indicates that prices are still rising, they are doing so at a slower pace. Alice Haine, personal finance analyst at Bestinvest, explains that softening inflation is positive news for households as it reduces financial strain. However, she advises against loosening household budgets, as the boost in purchasing power should not be taken for granted.
Bank of England's Response
The Bank of England has the power to raise its base rate in order to bring down inflation. Higher interest rates can benefit savers, but they can also increase mortgage rates for homeowners. Falling inflation, on the other hand, offers hope for mortgage holders and prospective buyers who are looking for lower interest rates. The Bank's Monetary Policy Committee has recently held the base rate at 0.25%, providing relief for homeowners facing rising mortgage rates. Experts are now predicting that the Bank of England may cut interest rates as soon as May, potentially reducing the rate to 4.25% by the end of next year.
Did you miss our previous article…
https://hellofaread.com/money/wage-growth-slows-but-interest-rates-set-to-fall/
