Hope that inflation has peaked took deeper hold in the City today, as bond and mortgage markets continued to improve and there were fresh signs of lower food prices ahead.
As the mood brightened, stock markets styayed on the up – with retailers and housebuilders in demand – and the pound headed further away from the $1.30 mark. Traders also continued to place bets that the Bank of England’s interest rate hikes would now not take UK base rates over 6%.
Some major high street names added to the improving mood.
Supermarket giant Asda said it was cutting the price tag on scores of everyday items. Then, the maker of Bisto and Mr Kipling – Premier Foods – promised not to raise prices for the rest of the year.
Its CEO Alex Whitehouse was crystal clear on his outlook: “We believe the recent period of significant input cost inflation is now past its peak,” he said.
He was not alone. Andrew Carter, CEO of English winemaker Chapel Down, which has hiked average prices by 16% over the past year, today told the Standard: “Our cost base is now stable – we’ve passed our cost increase to the consumer.”
Overnight, Tesla CEO Elon Musk said he expected to push down car prices further if the US Federal Reserve continued with the current pace of interest rate hikes.
Next, the Competition and Markets Authority called for all supermarkets to make prices clearer to help hard-pressed shoppers find the best deals. The watchdog also warned companies it would be looking out for lower wholesale and input costs being passed on to customers.
It all added to the sense that inflation turned a corner this week, when the consumer price index eased to 7.9% when it had been forecast to read 8.2%. It was the first bigger-than-expected fall in the consumer price index since the BOE started lifting rates in December 2021. Bets that rates would peak over 6% continued to fade.
Mortgage rates were already beginning to creep down today after yesterday’s better-than-expected dip in inflation, data from comparison tool MoneyFacts showed. The average 5-year fixed residential mortgage fell to 6.31% from 6.33% yesterday, while average 2-year rates slid to 6.79% from 6.81%.
John Choong, equity analyst at InvestingReviews.co.uk, said: “The green shoots of disinflation are appearing across the board.
“Markets are now pricing in a lower terminal rate from the Bank of England. As such, the UK economy could be at a turning point. Gilt yields are plunging, which should ease the upward pressure on mortgages and support house prices.”
In the Square Mile, traders continued to snap up gilts, sending the yield on five-year government debt, known as gilts, down to 4.31%, lower than the 4.51% reached on Wednesday.
Shorter-term yields are used by high street banks to price fixed-rate mortgages of similar durations. The two-year gilt yiled eased slightly – to 4.93% from 4.95% – but continued to head further away from the 5% mark, which makes mortgage lenders more comfortable.
