Short-term deflation is welcome relief
by Richard Butler-Creagh
With food prices dropping at the quickest rate in eight years in January, combined with further falls in the price of vehicle fuels, consumer price inflation is likely to move to a new record low in January, edging the UK economy closer to deflation, as such it looks increasingly unlikely the Bank of England will raise the base rate in 2015. The Centre for Economics and Business Research said: “The headline rate of inflation, as measured by the Consumer Price Index, fell to just 0.5% in December.” This is welcome news after the last couple of years of steep inflation, as high as 10% when taking into account the steep rise of fuel and food, according to some indicators. Savers have been worse off with the inflation eroding their accounts and making their hard-earned worth less by the low interest rate.
There are other indicators that the slow-down is slowing down. Banks are cautiously making funds more available to borrowers. Barclays have shuffled into the lead enticing buyers wanting to fix for five years, with deals starting at 2.29%, a cut of 0.1% from a week ago. First Direct has also shaved 0.2% off its five-year deal with a 2.59% fix until 2020. As usual these are for lenders with large deposits, normally 30% or more, but it is all suggesting that the market is heading for an increase in activity. When choosing a lender based on these 0.1 or 0.2% differences, remember to blends in the arrangement fees as they can alter the overall rate.
House prices still managed to increase last month with figures from Halifax showing that it jumped an incredible 2% taking the average to £193,130. This could be due to the reform of stamp duty producing a temporary wave, a spokesman said.