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What does Falling Inflation Mean for Prices?

Consumers are being warned not to get too excited about the news that inflation is falling in the UK. Although it has dropped significantly since its peak of 11.1% in October 2022, shoppers won’t see the benefits in terms of food prices in the foreseeable future.

Falling inflation seems to be the ongoing trend, with the Bank of England predicting it will continue to fall “significantly” throughout the remainder of 2023. However, the cost-of-living crisis is far from over, with experts fearing it could last until 2028.

Falling inflation concept

© Ascannio /

In fact, the Office for Budget Responsibility has predicted our living standards will continue to drop until at least the end of 2024, with the average household’s disposable income reducing by 5.7% between now and then.

This will be the biggest two-year decrease in disposable income in the UK since records began in the 1950s. Experts say the cost-of-living crisis won’t be over until prices stabilise and wages rise enough to catch up with the price hikes.

What is the current rate of inflation?

Inflation currently stands at 7.9%, with a significant drop occurring in June, largely due to petrol prices going down at the pumps.

In May, inflation had been 8.7% – but even though it’s falling, it’s still way above the Bank of England’s target rate of 2%.

If you’re wondering why workers are going on strike and demanding more pay, this is the reason. Wages are effectively shrinking because pay rises are less than the rate of inflation.

In simple terms, UK prices on all sorts of consumer products across the board are probably never going to go down to former levels, according to economists. Even if the prices do drop, it won’t be by very much.

How does inflation affect prices?

The economy is based on a model where wages are supposed to keep pace with rising prices to ensure consumers are less likely to feel the pinch. However, this simply isn’t happening and in real terms, people are worse off.

UK inflation rates reported each month by the Office for National Statistics relate to the changes in the cost of living. The rate reported by the ONS is the Consumer Price Index.

Economists record several different inflation rates across the board, including the retail prices index (RPI) inflation rate. This currently stands at 10.7%, which is still way too high. Grocery prices have gone up by 17.4% since summer 2022.

Some staples of people’s shopping baskets have gone up even more, with the cost of a pint of milk rising by a staggering 21.7% in the past 12 months. This is putting a massive strain on consumers.

The costs of gas and electricity have risen by 36.2% and 17.3% respectively, painting a bleak picture for householders in all parts of the country.

The Bank of England increased the interest rate for the 14th time in a row to 5.25% on 3rd August. Latest forecasts suggest the UK will avoid a recession, but interest rates will have to remain high for longer. This is bad news for homeowners whose mortgage repayments will increase.

Predictions suggest the economy will effectively “flatline” until 2026, which is weaker than previous forecasts had hoped.

How is inflation affecting us?

We are continuing to struggle with high living costs, because the falling rate of inflation does not mean prices will drop – just that they will rise less quickly.

The number of people in Britain taking out a loan to pay for basic household bills has increased, according to poverty charity the Joseph Rowntree Foundation.

Almost six million low-income families in the UK have unsecured debt, totalling £14.2 billion, which equates to £675 per year per household. More than one-third of these low-income families, totalling 2.3 million households, have borrowed money to pay essential bills such as utilities, according to figures released at the end of July.

While political attention has focused on how higher interest rates are impacting mortgage holders, the charity points out that the cost-of-living crisis is also affecting people on tight budgets, whose borrowing options are increasingly cut off.

Three-quarters of householders in this bracket are in arrears with at least one household bill, while 44% are behind with three or more bills. As lending criteria tightens up, 2.8 million low-income households have been refused a loan application between May 2021 and May 2023. The Joseph Rowntree Foundation says the cost-of-living crisis must not be allowed to fall down the political agenda just because inflation is dropping. On the contrary, the struggle to survive for low-income households is still the charity’s major worry.