Good for mortgages, bad for food prices: how the fall in inflation affects you

Walking through your local supermarket, you’ll be hard-pressed to find much on the shelves that’s healthy for your finances: Food price increases are accelerating.

The cost of weekly shopping is and will continue to be a concern for millions of people.

Beyond food, prices for goods and services in general are rising, but the pace of those price increases has slowed.

And that’s likely to bring better news for the cost of borrowing, particularly mortgage rates for homeowners and first-time buyers.

Prices almost always go up. Official statistics reflect the movement in the cost of hundreds of goods and services in the United Kingdom.

What is crucial is the rate of increase, and the Office for National Statistics (ONS) publishes that inflation rate each month.

On Wednesday, the ONS said the inflation rate had fallen to 3.6%, meaning prices are rising more slowly than they were and will encourage hopes that inflation has peaked.

Dig a little deeper into the data and you’ll find more details about what’s behind the latest trends.

For example, fish, vegetables, chocolate and sweets were among the products that rose in price, although fruit prices fell slightly.

Recent research from the Bank of England found that, on average, people are still buying the same amount of food, but paying more for it. That said, they are changing the way they shop.

“Concerns about rising food costs and utility bills still dominate conversations,” he said.

“Households continue to change their shopping habits to reduce spending, such as buying more vegetables and reducing meat consumption.”

“Commodities like bread, meat and potatoes are costing more than they were a month ago,” says Danni Hewson, head of financial analysis at investment platform AJ Bell.

But it does point to a silver lining: the fall in the inflation rate means the Bank of England is now more likely to cut interest rates in December.

The Bank uses its benchmark interest rate, which greatly influences the cost of borrowing for households and businesses, to try to drive inflation to its target rate of 2%.

“Inflation remains well above the happy 2% level set by the England Band,” says Alice Haine, personal finance analyst at Bestinvest.

But, he says, the latest figures could pave the way for a sixth interest rate cut since August last year.

The prospect of an interest rate cut has already caused lenders to make changes. In recent weeks, many major lenders have reduced their rates for people taking out a new fixed-rate mortgage or renewing their current one.

“There has been a particular focus on rates for house-movers, with some of the best rates available for purchases,” says David Hollingworth, of mortgage brokers L&C.

Data from financial information service Moneyfacts shows that the average rate on a new two-year fixed contract has fallen to 4.88%, and is down to 4.93% for the average five-year fixed contract.

Average rates for those who can only put down a 5% or 10% deposit – often first-time buyers – now look lower than they have been at any time in the last two or three years.

Inflation is only one factor in lenders’ decisions to lower mortgage rates now.

Christmas is generally a quiet time for the real estate market as potential buyers and sellers focus on the turkey and trimmings.

Therefore, they may be lowering rates in an attempt to stimulate clientele.

The same cannot be said for savings rates. “Competition has been low,” says Caitlyn Eastell of Moneyfacts.

Added to this is the fact that many of those buyers, sellers and savers have put their plans on hold until they know what happens in the Budget delivered by Chancellor Rachel Reeves on November 26.

The Budget weighs on the real estate market, and there is talk of taxes on high-value properties, as well as on economic activity in general.

Reeves wants to introduce measures to reduce the rate of inflation and help people with the cost of living. However, it also needs to provide more money or cut public spending to comply with its own fiscal rules.

It’s a delicate balancing act that will affect individual and family finances, affecting the money people have to spend at the supermarket and the appetite they have to save, as well as to buy or sell a home.