Inflation drops sharply in October – what does it mean for you?

Inflation drops sharply in October – what does it mean for you?

Inflation fell to its lowest level for two years in October, raising hopes that we may have seen the last of interest rate rises – for now.

Inflation, or the rate of increase in living costs, fell back by more than many expected to 4.6% in the 12 months to October, down from 6.7% in September, according to latest Office for National Statistics data. Although this means the Government has met its pledge to halve inflation by the end of the year, it remains well above the Bank of England’s 2% target.

This week’s lower inflation figures are good news for homeowners and buyers, who have had to endure 14 consecutive increases in the Bank of England base rate since December 2021. Rates rise when inflation is high to try to bring price increases under control. Increasing interest rates means borrowing costs rise, dampening consumer spending and helping slow the pace of growth.

Why is inflation falling?

The primary driver behind October’s fall in inflation is stabilising gas and electricity prices along with the introduction of a lower energy price cap. A reduction in food price inflation has also contributed, although food costs remain around 30% higher than they were in October 2021.

The Office for National Statistics said: “The easing in the annual inflation rates principally reflected negative contributions from three divisions, with large downward effects from housing and household services, food and non-alcoholic beverages, and restaurants and hotels. Recreation and culture provided the only large positive contribution.”

What it means for your mortgage

Even though the Bank of England is considered unlikely to raise the base rate again imminently due to inflation easing, it remains at 5.25%, a 15-year high. This is already placing considerable financial strain on homeowners coming to the end of low fixed rate deals, many of whom now face a sharp jump in costs when they come to remortgage.

However, slowing inflation is already having an impact on mortgage rates, with several lenders, including HSBC, Halifax and Barclays, trimming rates this week. Best buy five-year fixed rates are now edging towards the 4.5% mark, which is great news for those looking for peace of mind that their monthly payments will remain the same for a prolonged period.

You shouldn’t wait for your current fixed rate to finish before you start your mortgage search, as most lenders allow you to lock in your new deal up to six months before you need it to start. The main advantage of this is that you’ll be able to roll onto your new deal as soon as your current deal ends, rather than moving onto your lender’s more expensive standard variable rate (SVR).

You can compare mortgage deals here, or seek advice to find the best options for your circumstances.

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