This morning’s announcement from ONS regarding inflation dropping to 7.9% in the year to June will be welcomed news following the recent figures.

It means the rate of price rises in the UK has slowed more than expected, down from 8.7% in May.

The latest figures exceeded the market forecasts of a reduction to 8.2% and core inflation a key influencer on swap rates was also down to 6.9%.

Core inflation remains close to a 30 year high, which is the area the bank of England are targeting to bring down so we can should still expect more rate rises in August and potentially September.

The UK has the highest inflation amongst the G7 countries, but hopefully this marks the start of a downward trend and towards the government target to half inflation to 5% by the end of the year.

While it’s difficult to pre-empt market reaction, this will hopefully have a positive impact on future market forecasts, and a calming to the recent volatility in fixed rates.

It will take a few months before we see any substantial decreases in fixed rate pricing, the advice will be for mortgage holders unsure on their next move to speak to broker or their lender, commented Nicholas Mendes, Mortgage Technical Manager at John Charcol.

Commenting on the today’s inflation figures, Kevin Pratt, personal finance expert at Forbes Advisor says:

“Hard-pressed consumers and mortgage holders will hope the larger-than-expected fall in the headline rate of inflation might enable the Bank of England to take its foot off the interest rate accelerator when it announces its next policy decision.

They might have heard the good news about the falling energy prices, seen reports that food inflation has peaked and watched the business secretary demand supermarkets cut the price of petrol and thought a corner has been turned. And in some ways it has.

But the Bank’s main focus is likely to be the measure of inflation that strips out food and energy costs because of their inherent volatility – and this core figure shifted more modestly in June, edging down from 7.1% to 6.9% on the back of wage increases.

This doesn’t auger well for the August Bank Rate call.

We’re going to see the cost of borrowing increase on 3 August – the question is whether it will be an 0.25 or 0.50 percentage point increase in the Bank Rate to 5.25% or 5.50%.

Either way, this will result in more expensive mortgages, stretched household incomes and continued financial misery for millions.”

Chris Druce, senior research analyst at Knight Frank, comments:

“13 consecutive base rate rises by the Bank of England since December 2021 to tame inflation has taken us to 5%, and pushed the cost of borrowing to a recent high.

This has reduced buyers’ spending power, weakened sentiment in the UK property market and acted as a drag on activity .

Nerves are unlikely to be calmed and the outlook improved until buyers’ can gauge where the new peak in the bank rate will be, allowing them to plan accordingly.

Today’s fall in inflation is therefore important but a step on a journey that’s not yet complete.”

Saxo UK CEO Charlie White-Thomson, comments:

“Today’s year-on-year UK inflation print of 7.9% is a step in the right direction and evidence that the significant financial medicine in the form of interest rate hikes is taking effect.

The big number of 7.9% is still well off the ‘no ifs or buts’ 2% target and the cost of living crisis remains painfully evident.

With this in mind, we should prepare for a 25bp hike by the Bank of England on August 03.

The war to defeat inflation is not over and the Governor has nailed his colours to the 2% target.

Motor fuel prices led the largest downward contribution to the monthly change in CPI while yearly food remains stubbornly high at 17.4% according to the Office for National Statistics.”

Stephen Bryson, Independent mortgage and protection adviser at IFO comments:

“Inflation rates have fallen faster than many of us expected which will be a welcome update to the UK housing market.

Recent inflation increases have caused upheaval across the UK’s housing market, with the supply now exceeding the demand.

For those looking to buy, prices may be negotiated down, but we’re not actually seeing many downward valuations.

Ultimately, people still need homes, but higher interest rates and the cost of living will shift focus towards what people need rather than what they want.

As a result, more expensive houses will take longer to sell compared to an average priced ones.”

deVere Group’s CEO, Nigel Green, warns that the Bank of England will still raise interest rates despite cooling inflation:

The warning comes as fresh figures reveal that UK inflation fell to 7.9% in June, from 8.7% the month before.

He says: “Despite the data showing that the battle against inflation in the UK is being won, we expect the Bank of England will confirm it’ll continue with its aggressive interest rate hiking agenda at the monetary policy meeting on August 1.

Although the consumer price index fell to 7.9% last month, amid lower petrol prices and a slowdown in the pace of growth for food, beverages and other basics, the central bank officials will likely argue that there is still work to be done.

We believe the Bank will insist that although inflation is certainly coming down, it is doing so very, very gradually.

It remains sticky – still the highest in the G7 – and a long way from the 2% target.

They will say prices are still far too high and rising at a quicker pace than they have done in the past.

In addition, they are likely to cite strong wage growth in the three months to May.

Against this backdrop, we expect the Bank of England to increase interest rates for a 14th consecutive time at its next policy meeting – and we wouldn’t be surprised if there were a second consecutive 50 basis point hike.”

Another interest rate hike could “pile on more misery” for households, homeowners, and businesses.

Higher interest rates lead to increased borrowing costs, making mortgages more expensive. Homeowners with variable-rate mortgages are likely to face higher monthly payments.

Rising interest rates will also reduce disposable income as loan repayments increase, affecting household spending and overall economic activity.

Businesses reliant on borrowing may face higher interest expenses, which can affect their profitability and ability to expand or invest.

In addition, higher interest rates can reduce consumer spending, affecting businesses dependent on consumer demand.

Hiked interest rates typically negatively impact the value of existing fixed-income investments, such as bonds, as newer issuances offer higher yields.

The higher rates also historically lead to stock market uncertainty and increase volatility, as investors reassess the attractiveness of different investments.

Sectors sensitive to interest rates, such as housing, cars, and financial sectors, could experience greater impacts than others.

Green concludes: “We believe that although the battle to tame inflation seems to be being won, with the lowest reading in 16 months, the Bank of England is highly unlikely to be dissuaded from its course of rate hiking action for the time being.”