THE worst of the cost-of-living crisis could be over and Islanders struggling following relentless rises in prices and mortgage rates could finally be “heading towards better times”, experts have said.
The highest inflation rate since the early 1980s and 14 consecutive rises in the Bank of England base rate have left many people facing the most severe financial hardship of their lives.
But last week the UK recorded its lowest rate of inflation for two-and-a-half years, partly fuelled by a decrease in food inflation which the British Retail Consortium said should filter through to Jersey.
Announced last week, the UK’s Consumer Prices Index – the government’s preferred measure of the cost of living – rose by 3.2% in the 12 months to March, down from 3.4% in the 12 months to February.
While inflation was still falling slower than expected, it was the lowest rate since September 2021.
The rate is expected to fall further next month, with the governor of the Bank of England forecasting “quite a strong drop” to the government target of 2%.
Cooling inflation in food and drink prices are contributing most to the continuing decline.
Food prices also contributed to the decrease in Jersey’s inflation rate last quarter from 10.1% to 7.5%. The latest figures are set to be announced at the end of this week.
Harvir Dhillon, economist at the British Retail Consortium, said: “Jersey imports most of its food from the UK, which has continued to see easing food inflation.
“This easing trend is expected to mirror itself in Jersey, where food inflation will likely have fallen to the low single digits in Friday’s release of the Retail Price Index figures.”
Jersey Consumer Council chair Carl Walker agreed that food prices were “certainly settling down”.
He explained: “The prices of groceries in Jersey are still going up. However, the rate at which they’re going up is certainly slowing. These are not quite down to the levels of the UK yet, but that will begin to filter through.”
He said that the pricecomparison.je website, which monitors prices in Jersey, is due to be relaunched in the coming weeks.
“We will be keeping an eye on how the increases in freight, electricity, water and gas, which all came into force in January, are going to filter through to our rate of inflation,” he continued.
“All those increases, as well as increases in petrol prices, could hold our inflation rate where it is, and maybe even drive it back up in some aspects.
“Jersey might see a bump in the road this quarter, but all the indications are suggesting that we are over the worst. It is a bit like looking into a crystal ball, but the UK is heading in the right direction, and usually we are a quarter or two behind, so we’re hopeful that we are heading towards better times now. Come the end of the summer, we should be on the right path to everything slowing right down.
“We still have a volatile situation in the Middle East which could have an impact on the prices we pay, and it is still extraordinarily expensive for people to fill a carrier bag of shopping.”
The Bank of England has held the base rate at 5.25% following a series of rises to try to stem inflation.
Many analysts believe that the Bank could begin to cut rates later this year if inflation continues to drop as expected.
Although Islanders coming off fixed-rate mortgages taken out when the base rate was at a historic low will see significant rises in their monthly repayments when they fix new deals, the rates have come down from where they were last year.
Recently published figures show that an average rate for a two-year fixed rate mortgage at 90% loan-to-value dropped from 6.8% in December to 6.3% this month, with further decreases possible this year.
Peter Seymour, from the Mortgage Shop, said the situation was complex but that it presented “great news for a significant part of the mortgage market”.
He said: “The Bank of England governor seems to think that next month’s inflation rate news will indicate that it has dropped to 2%, and if that’s the case, then he will have to start reducing base rates.
“It’s not a foregone conclusion that it’s going to fall, but if the bank starts reducing rates, this will have an impact on interest rates charged by the seven Jersey mortgage providers.”
He continued: “On that assumption, it’s going to be brilliant news for anyone who is looking to purchase a property, borrow money later this year, or whose interest rate is coming to the end of a fixed rate.”
