Looking towards a 'normal' financial future

August was a month that saw the publication of some rather grim economic figures by the Bank of England, the ONS and other notable sources. 

The latest BBC report revealed that ‘Inflation drives fastest fall in real pay on record’ with average wages rising but due to the continuing cost of living rising faster than normal, household budgets across the UK are being hit hard – especially when it comes down to the soaring energy bills. The rise in prices has fuelled UK inflation, and we are currently at a 40 year high. 

There is no doubt that inflation is exceptionally high, and it could well go higher. In its Policy Summary, the Bank uprated its inflation forecast to “just over 13% in 2022 Q4” – partly because of rising energy costs. It also said that inflation would likely “remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead.”


Other sources go further. On 17 August, Resolution Foundation predicted that inflation could reach 15% next year, and on 22 August, Citigroup forecasted a rate of over 18% in 2023. These high rates could be curbed if the government were to act to prevent runaway energy costs – the biggest driver of inflation right now – but in any event, prices would likely continue to rise because of other indirect pressures.

The Bank of England has previously said that it believes it can bring inflation back down close to its target of 2.0% at some point in 2024. Its latest summary makes that same broad prediction. If it does so, then it will clearly feel less pressure to raise interest rates further. That would be good news for homebuyers and investors alike; a return of more stable rates of interest and inflation should then help to sustain further price growth in the coming years. 

But can we look at things in a positive way at this moment in time?

Darren Bennett, Co-Founder of Fortem Property comments: “The fall in real incomes must eventually lead to a slower growth in rental returns and average house prices. The positive news is that the conditions are extremely unusual and not set to last – they can’t, it is not humanly possible. Inflation is at least partly the result of global factors, many of which should gradually ease. And importantly, as it returns towards the Bank of England’s target rate, many of the attendant risks and strains on ordinary people’s finances should also begin to normalise. Thereafter, since demand for housing still greatly exceeds supply, more usual and rewarding investment conditions should start to return”.


< Back