The annual rate of inflation rose by 0.5% to 3% in April according to figures released yesterday. This is the biggest monthly increase since July 2002, and deals a blow to mortgage borrowers hoping for a cut in bank base rate next month.
The Office for National Statistics said rising energy costs had been the key factor behind the rise, and along with a hike in food costs was blamed for the 0.5% rise being beyond what many analysts expected.
The Bank of England’s remit is to keep inflation at 2% and this sharp rise would appear to justify it’s decision to hold interest rates at 5% last week, and makes a June cut less likely.
This would be bad news for the housing market as we head towards the traditionally quiet summer months, with two further reports confirming the continued downturn.
The Council of Mortgage Lenders (CML) reported today that the number of house purchases has dropped by 48% over the 12 months to March, while the Royal Institute of Chartered Surveyors (RICS) latest figures show that in all bar one of the regions it surveyed, more estate agents reported house price falls than reported increases. The number of purchases for March 2008 was 46,500 compared with 89,000 in March 2007, a further downturn from Feburary. However remortgaging remained relatively resilient, accounting for 44% of gross lending in the first quarter of 2008, largely driven by the numbers of borrowers whose short-term fixed-rate mortgages were coming to an end.