Today’s inflation figures effectively seal the fate of the housing market for the rest of this year – including the crucial capital appreciation on which many landlords rely. 

That’s the claim by analysts in response to the news that the rate of price rises in the UK has slowed more than expected in the 12 months to June.

Forecasters had predicted a fall in the so-called ‘headline rate’ from 8.7 to 8.2 per cent – however, in fact the rate fell to 7.9 per cent. 

Falling prices for motor fuel led to the largest downward contribution to the monthly change, while food prices rose in June 2023 but by less than in June 2022, also leading to an easing in the rates.

It’s uncertain whether this fall will be enough to stop the rise in Bank of England base rate expected next month – which would be the 14th successive rise.

Before this morning’s figures were released, analysts were generally pessimistic.

Bob Singh, the founder of Chess Mortgages, says: “This month’s inflation figures are do or die for the property and mortgage markets. With inflation proving stubborn, we desperately need it to follow the same downward trend as our US counterparts who saw a drop last week that precipitated a small decline in swap rates. 

“Even with a slight fall in inflation, we are not out of the woods just yet. The spectre of wage inflation looms large not to mention that Christmas spending starts soon, too. It’s clear that raising interest rates to induce a recession hasn’t worked so far. With elections looming, any moves to raise taxes will be resisted by the Tory grandees. Anything lower than 7.0 per cent would be good to stave off or defer any rate rises that are already beginning to strangle the housing market.”

Ross McMillan, owner of Blue Fish Mortgage Solutions, agrees. He says: “The inflation data has now become so pivotal and seemingly the only barometer of concern to the government and Bank Of England that this week’s numbers could determine the fate of the UK property and mortgage markets for the rest of 2023. 

“If the numbers are disappointing, then the time to call for the lifeboats may well be upon us and a worrying few months will be ahead. However, if we can see a similar downward pattern to the US, then whilst choppy waters remain likely, this should at least give hope to mortgage holders that the relentless pounding from the Bank of England over recent months may diminish sufficiently to allow borrowers the chance to breathe a little.”

And Jamie Lennox, a director at Dimora Mortgages, comments: “This week’s will be a case of sink or swim for millions of mortgage holders already treading water to stay afloat. Last month’s data had huge consequences for the rates available on mortgages and if this next print doesn’t drop below the expected targets, there could be further turmoil for mortgages with real long-term consequences to the stability of the housing market.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, says: “Headline inflation is expected to tick down very slightly in this week’s figures, but core inflation is likely to hold firm. Even the drop in overall inflation is far from guaranteed – given that it was forecast to fall last month too, but that didn’t materialise.

“The rapid drop in petrol prices we saw during May has slowed significantly, while the energy price cap means utility bills aren’t going anywhere for now. Their inflation rates will both be significantly down from a year earlier, but monthly movements are more disappointing. 

“We have seen food inflation ease off very slightly – and the supermarkets are making reassuring noises about lower inflation finally having an impact on prices in the coming weeks and months. However, we still expect sky-high prices to feed inflation in June.

“Anything other than a surprisingly large drop in both headline inflation and core figures is unlikely to alter rate expectations. Wage inflation data released on July 11 will be lingering in the minds of the MPC, who will want to demonstrate they are prepared to do what it takes to get inflation under control. We’re very likely to see a rate rise when the Bank meets again in August. 

“For anyone with a variable mortgage, rates are likely to rise along with the Bank of England’s decision. This is going to be a nightmare for anyone who reverted to their standard variable rate in the hope that rates would fall quickly, and make fixed mortgages more affordable. Fixed rate deals, meanwhile, are already on the march, because rate expectations are so strong. These are likely to keep climbing while we get strong signs of sticky inflation. 

“Only a lower-than-expected inflation rate would bring some relief.”