Inflation continues to rise
CPI rose by 7% in March, up from 6.2% in February, representing the highest inflation rate for 30 years.
This surge occurred across most types of consumer expenditure with transport (0.24%), restaurants and hotels (0.15%) and food and non-alcoholic beverages (0.09%) being the main contributors. The rise is largely related to the increase in the price of fuel, energy and food which are putting more pressure on household budgets.
In order to combat these rising levels, the Bank of England’s Monetary Policy Committee (MPC) voted to increase the bank rate by 0.25 percentage points, from 0.5% to 0.75%, in March. This rise was intended to counter an expected global surge in inflation caused by rising fuel prices as a consequence of Russia’s war in Ukraine.
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“Prior to the outbreak of war in Ukraine, we expected inflation to peak in April this year following the energy price cap being raised but this, and the impact of the war, has not yet been fully factored into the numbers,” said Nitesh Patel (pictured), strategic economist at Yorkshire Building Society.
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“The future path of inflation depends on the sanctions imposed on Russia by the Western powers, which will increase the cost of a number of commodities including wheat, other grains and energy,” added Patel.
There could be further impacts, he outlined, if there are secondary sanctions imposed on other countries that trade with Russia. The more effective the sanctions, the greater the future effect on inflation, he outlined.
What has been the impact on UK house prices?
There is a train of thought that with household budgets squeezed, there will be reduced momentum for the UK housing market with first-time buyers in particular facing a further squeeze on their ability to save for deposits and stamp duty.
Yet, so far, that has not been reflected in the marketplace.
For UK house prices, properties increased by 10.9% over the year to February 2022, up from 10.2% in January 2022. The South West and East of England were the regions with the highest annual house price growth, with average prices increasing by 12.5% in the year to February 2022. This was up from growth rates of 11.5% in the South West, and 11.4% in the East of England, in January 2022.
However, there are winds of change.
“The imbalance between supply and demand that has driven prices up over the past two years appears to be fading,” Patel said.
New sales instructions balance moved from -1 in February to +8 in March, taking it above zero for the first time in 12 months. Meanwhile, new buyer enquiries balance fell from +16 to +9. As a result, the difference between supply and demand dropped to a level consistent with quarterly house price growth starting to ease, according to Patel.
He went on to say that limited stock and robust sales are likely to see house prices make further gains in the short term.
“Most experts expect as we move into H2, economic headwinds including the rising cost-of-living may act as a brake on price growth, with annual value rises returning at more sustainable levels,” concluded Patel.
