While the news inflation slowed in March to 2.6% is welcome and an interest rate cut is widely expected next month, it may simply be a brief glow of light to ward off the spectre of ‘stagflation’ a little longer.
The recent quakes from Trump’s tariffs have subsided for now and some analysts are upbeat after news that inflation had slowed, as revealed by the Office for National Statistics (ONS).
The ONS found the largest downward contributions to the monthly change in Consumer Price Index (CPI) annual rates came from recreation, culture and motor fuels.
However, the spectre in the room – or perhaps the witches from Macbeth – is the increase to employer National Insurance contributions, and above-inflation rises to the national living wage and stamp duty.
From April 1 buying homes between £300,001 and £500,000 incurs a 5% stamp duty rate, whereas previous first-time buyers on homes up to £425,000 did not pay anything.
These will all affect inflation and you can add to that energy and water price increases plus whatever crazy effects we see from the ongoing tariff issue, which most assuredly has not gone away.
This could well lead to stagflation – slow growth, rising unemployment AND rising inflation.
We certainly hope things don’t become that dire and perhaps the stagflation spectre can go and haunt another country (the US, perhaps?) but the picture will become clearer in the next month or three as to the effects of all these mitigating factors.
Certainly in the short term further interest rate cuts will be welcomed by borrowers and mortgage holders but it means lower interest rates for savers.
Anyone currently requiring a mortgage is advised to shop around for the best rates to ease things as much as possible.
It’s also interesting to note that annual house price growth accelerated to 5.4% in the year to February, ONS data has shown.
According to the latest UK House Price Index from the ONS, as reported by MoneyAge, the average house price for England was £292,000 in February, up 5.3% (£15,000) from a year earlier.
Prices are likely to have been lifted by buyers scrambling before the tax hike.
However, if growth slows, inflation rises and etc etc, the housing market will struggle and people will become unwilling or unable to buy or sell, though again that’s not a prediction just yet, we need to wait and see.
All of which is to say nothing is too predictable right now and as we’ve said repeatedly in recent columns, conditions remain too unsettled to call – it also depends upon the next statement of ‘back-of-a-cigarette-packet economics’ from the White House too…
If you do need to make major financial decisions right now, we still strongly advise you to speak to ourselves or another independent financial adviser (IFA) or a mortgage professional to fully explore your options before going ahead.
