16 October 2024
- CPI inflation fell to 1.7% in September – a bigger drop than had been expected. On a monthly basis, it was little changed.
- Core CPI (excluding energy, food, alcohol and tobacco) was 3.2% (down from 3.6% in August) and services inflation fell from 5.6% to 4.9%.
- What it means for spending, savings and mortgages.
The ONS has released inflation figures for September: Consumer price inflation, UK: September 2024 – Office for National Statistics
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“The squeeze has eased, and we have room to breathe. But brace yourself, because you’re going to need to tighten your belt again next month. The yo-yo of inflation will bring a smile to people’s faces this month, but it’ll be more of a grimace in four weeks’ time. It’s a challenge for our budgets – but will make surprisingly little difference to the Bank of England – so savings and mortgage rates should keep getting slimmer as we move towards the end of the year.
Spending
Inflation fell further than expected in September, hitting its target for the first time in three years. Price cuts at the petrol pumps have driven inflation lower, on the back of a drop in the oil price during the month.
Air fares are also keeping prices at a lower altitude. These always fall between August and September, but this is an impressive step downwards – the fifth largest since these prices were first collected 23 years ago. It owes a lot to an unusually large bump in prices in August, as the washout of a summer drove more people to European destinations. It’s also being compared to a summer of cheaper travel a year earlier.
Meanwhile, retailers have been busy cutting prices in an effort to persuade wary shoppers to part with their cash, despite their concerns about the future path of tax. Men’s and women’s fashions were particularly heavily discounted. Clothes prices still rose on the month, but much slower than a month earlier.
Food and drink prices rose slightly – for the first time in 18 months. Interestingly one of the sections of the supermarket pushing up prices was the dairy aisle, selling milk, cheese and eggs. We know the short shelf life of these products makes them more volatile. The question will be whether they’re an early indicator of more widespread price rises further down the line.
The bad news for shoppers is that this is likely to be the last month for a while when the Bank of England can enjoy the glow of satisfaction that comes with being below its 2% target – and the blush of surprise that it came in lower than expected. Next month, inflation is set to rise again, renewing the pressure on budgets.
Energy prices will inflate our spending horribly, because the energy price cap soared 10% at the start of October. When measured against a fall a year earlier, it’s going to look particularly grim. Petrol prices are likely to add insult to injury. They’ll be back on an upwards trajectory thanks to conflict in the Middle East and rising oil prices.
The fact that inflation is lower than expected will come as terrible news for those relying on benefits. This is the month that dictates how benefits will rise in April, so it’s a bitter blow that it’s likely to be the low point for inflation this year. The HL Savings & Resilience Barometer shows that people who are out of work and relying on benefits have just £8 left at the end of the month after covering the basics, so a tighter squeeze on spending is going to leave them with nowhere to turn.
Mortgages
Mortgage borrowers on tracker rates have waited a long time for more good news, but November should finally deliver a cut in their monthly costs. For those looking for a new fixed rate, or with a remortgage looming, there’s better news too, because mortgage rates are already lower. Cuts have been priced in, so Moneyfacts puts the average 2-year fix at 5.37% – down from 6.36% a year earlier.
The HL Savings & Resilience Barometer from July shows that the top 10% of earners have average mortgages of £180,503. If you assume they’re repaying it over the next 15 years, remortgaging at these average rates mean you’d be £97 better off with a remortgage today than you would have been remortgaging the same time a year earlier. It means an expired mortgage deal isn’t quite the blow to your financial resilience that it was while mortgage rates were sky high.”
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
Savings
“There’s every chance all of this means very little to the Bank of England, which has factored in fluctuations due to energy and fuel prices, and is still expected to cut rates in November.
For savers, it means more bad news is on the way. Easy access savings rates have already been falling, and while there are a couple of accounts still offering 5% or more, they’re increasingly thin on the ground. A cut in November would spell the end of rates at this level for now. Much of the cuts have already been priced into the fixed rate market too. A 5% rate is vanishingly rare in the 1-year market, and the best deals over two years or longer are now closer to 4.5%.
It means you need to weigh up whether you actually need your savings close to hand. You should have easy access savings to cover 3-6 months’ worth of essential spending while you’re working age and 1-3 years’ worth in retirement, but for any cash you’re holding beyond this, it’s worth considering tying it up in accounts or cash ISAs for the periods that make the most sense for your finances. Before you move, check the savings rates on offer from online banks and savings platforms, which tend to offer better deals than the high street.”
