What does slowing inflation mean for you?

Interest rates have risen thirteen consecutive times since December 2021 to try to lower inflation. Raising interest rates makes borrowing more expensive, which in turn dampens consumer spending and cools inflation.

Here, we explain what the latest inflation figures mean for your finances.

Your mortgage

Homeowners on variable rate mortgages will have seen their payments jump in recent months, whilst those on fixed rates will need to prepare for much steeper costs when they come to re-mortgage.
However, the larger than expected drop in inflation means that there’s a chance the Bank of England may not raise interest rates as sharply as it might have been planning to in coming months.

Myron Jobson, personal finance analyst at Interactive Investor, said; "The larger than expected dip in inflation in June is a pleasant surprise for households and a huge relief for policymakers. It means the Bank of England will probably now have to go less far when it comes to upping interest rates to tame inflation. This could spell the end of the chaos which has gripped the mortgage market in recent months on the uncertainty over how high interest rates will go to combat stubbornly high inflation.

"The hope now for those looking to get on and move up the property ladder as well as existing homeowners is that mortgage rates will fall sooner rather than later.”

Your savings

If you’ve been delaying putting savings into a fixed rate savings account in the hope that rates will edge higher in the next few months, you might want to act sooner rather than later.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “For savers, an easing of rate expectations would mean fixed rate savings stop inching upwards. We’ve already seen some of the best rates go in a flash, and on the back of this news, we may well see more of the best deals pulled from the market.

“If you’ve been waiting for rates to rise to a level where you’re prepared to fix, it’s time to take stock. With the most competitive one-year fixed rate at 6.15% and the best over two years at 6.2%, at least for now, this may be as good as it gets.”

Your pension

Even though inflation is easing, it remains at nearly four times the government’s target of 2%, and therefore making ends meet if you’re retired and reliant on a pension can be difficult.

Rosie Hooper, chartered financial planner at Quilter said; “Many pensioners tend not to have much debt as they typically own their home outright, but that does not mean they will escape the current financial pressures.

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“High inflation means that their regular pension payments may no longer cover their living expenses as they did before. While the state pension was boosted in line with inflation some pension plans may not keep pace with inflation, therefore reducing the value of benefits over time, which could result in a lower standard of living and increased financial stress.”

If you’re struggling to pay your bills each month, it’s worth seeing whether you might be eligible to claim any benefits. For example, Pension Credit is a means-tested benefit which is payable to people of State Pension age who are on a low income. You don’t need to be receiving a State Pension to claim.

If you qualify for Pension Credit, it will top your weekly income up to at least £201.50 if you’re single, and £306.85 for couples, and it can also give you access to other benefits, such as help with Council Tax and a free TV licence if you’re over 75. You may get more if you have disability or caring responsibilities. If you think you or someone you know maybe eligible for Pension Credit, you can check and claim online, or by telephoning 0800 99 1234.