Cost of living - latest: Interest rate forecasts change sharply after inflation falls more than experts predicted (2023)

Key points
  • UK inflation fell to 7.9% in June - more than expected
  • Core inflation also down - a key factor in interest rate decisions
  • Interest rate forecast falls sharply
  • How Russia pulling out of grain deal could affect UK inflation
  • Use our spending calculator to see which prices have gone up or down
  • Has your business been impacted by high inflation? Share your story
  • Live reporting by Katie Williams and (earlier) Ollie Cooper


'£113bn wiped from nation's savings in real terms,' analysis suggests

The rising cost of living has left many of us feeling the pinch in our day to day lives - but also when it comes to preparing for the future.

Analysis by investment platform AJ Bell suggests that as much as £113bn may have been wiped off the value of the nation's savings in real terms over the past year as a result of rising inflation.

The platform's head of personal finance Laura Suter says savers are "still being pummelled" despite a slight fall in inflation, as they put up with lower returns on their savings.

"Although interest rates have risen considerably over the past year and a half, savers still lost money in real terms thanks to double-digit inflation for much of that period," she said.

The average saver with £1,000 in an easy-access account will now find their cash is only worth £938 in today's money, Ms Suter added.

"Based on the £1.81trn that Brits have in savings accounts, it means the nation's savings could have collectively lost as much as £113bn over the past year in real terms."


Is it better to take a fee-free mortgage deal?

The effect of interest rates on mortgage costs is a significant issue on the minds of first-time buyers and those approaching the end of their fix.

But people looking to find a new deal also have to consider the possibility that their policy may come with an upfront fee - a less-discussed aspect of the mortgage-hunting process.

Analysis by consumer champion Which? found that six in 10 fixed-rate and tracker mortgages on the market now come with product fees - with the highest charge sitting at a whopping £3,999 set by Halifax.

The average fee tends to hover around the £999 mark- and high fees can sometimes disguise attractive rates, so make sure you go through all the details with your mortgage broker.

Which? says mortgages with a higher loan-to-value level are more likely to be offered without a fee in a bid to attract first-time-buyers with less money to spare.

Analysts at the consumer champion have compiled this table which shows how much someone would pay over two years, on a £200,000 mortgage fixed to a 25-year term, in different scenarios:


British shops risk becoming 'intimidating vending machines' - as CCTV that can tell if you are acting like a shoplifter deployed

By Brad Young, live reporter

An expert adviser on retail theft has cautioned supermarkets against creating "threatening and intimidating" aisles full of barriers, security tags and dummy products.

Security measures usually reserved for spirits and beauty products are increasingly being used in grocery settings, as more people steal essentials "to survive", according to Professor Adrian Beck.

CCTV software that monitors customers and alerts a guard if their movements match those of a shoplifter is being deployed by some shops, said the criminologist, who has advised retailers on theft prevention for three decades.

There is a danger "every aisle becomes just a vending machine because it's so controlled", said Professor Beck, an academic advisor to the ECR Retail Loss Group.

"It's a bit like walking down a high street at night when everybody’s got their security shutters down – it feels a brutal space."

Shoplifting has increased by 26% in the last year, according to the British Retail Consortium (BRC).

Professor Beck said that the growing number of people in a "precarious" economic position "inevitably... feeds through into problems around people stealing food in particular and other essentials to survive".

Supermarkets make small margins on groceries, so very few thefts can be absorbed before it becomes cost-effective to bulk up security or simply stop selling certain products, explained Professor Beck.

"High levels of theft cost retailers almost £1bn in 2021-22, money that would be better used to reduce prices," said Tom Ironside, director of business and regulation at the BRC.

"Retailers are spending hundreds of millions on security staff, CCTV, security tags, and other anti-crime measures."

Sky News has previously reported on dairy milk in security cases, fake coffee pots on shelves and locked away baby formula.

Not all security is that obvious - some shops use CCTV technology "not dissimilar to AI" to track customer behaviour, said Professor Beck, formerly the head of criminology at the University of Leicester.

"You can tell it to look for red coats, or to look for somebody who has taken an object from a shelf and put it directly into their pocket."

Other stores are looking again at the Argos method – with the catalogue being the only thing available to steal, he said.


We need to adapt to a higher inflation world, former Osborne adviser says

Relatively high levels of inflation are "here to stay" and it's the end of a period of "cheap money", a former adviser to George Osborne has warned.

Helen Thomas, chief executive of Blonde Money, told Sky News "the way we live and work has changed" and the country needs to adapt to "a higher inflation world".

She said factors such as the conflict in Ukraine and a rise in the number of people who are economically inactive have contributed to inflationary pressures.

"The whole way we live and work has changed," Ms Thomas added.

"The economy is far different than it was, we're settling into that new world... we've just got to get used to a world where there is generally a bit more inflation than there was."

She cautioned that 4% or even 5% interest rates are also "here to stay".

A key issue now is managing the "expectation about inflation", Ms Thomas added.

"What we're hearing from the government and the Bank of England is they want you to know they are credible... if we all decide they've lost the plot and can't deal with it and rates keep going up, and inflation keeps going up, that is a much harder ball game and a much worse situation to be in."


Vodafone's new £20 a month social tariff aimed at helping struggling households

A new social broadband tariff from Vodafone has been welcomed as a "step in the right direction" for offering households struggling with expenses a faster service at an affordable price.

The network operator announced this morning that its new £20 a month tariff, Fibre 2 Essentials, would "meet the needs of busier households" by offering 73Mbps.

Vodafone says eligible customers can join without a set-up fee, leave for free at any time and avoid in-contract price rises.

People on certain benefits including Universal Credit and Jobseeker's Allowance will be eligible for the tariff.

Reacting to the news, Ernest Doku, telecoms expert at, said social tariffs typically mean "you have to take what you're given", which can mean "slower speeds that aren't entirely suitable for busy households".

But he said it is a "welcome step in the right direction, offering higher speeds at a monthly cost that is 20% lower than the market rate, for those who are eligible".


Care Quality Commission suspends strike after pay row resolved

An upcoming strike by staff at the Care Quality Commission has been called off after a pay dispute was resolved.

CQC workers in the Public and Commercial Services (PCS) union had planned to walk out 26, 27 and 28 July.

But the strike will no longer go ahead after the union said managers had agreed to award staff a £1,500 cost-of-living payment recommended by the government.

PCS general secretary Mark Serwotka said workers had "won this battle on the our way to winning the war".

But he noted there "is still a long way to go".


Will latest inflation figures affect state pensions?

With the easing of inflation in June comes questions about how state pensions could be affected.

"Government policy is to take the inflation rate in September... and use that rate to decide most of the benefits from the following April," former economic secretary to the Treasury Kitty Ussher told a Sky News Q&A.

The time lag worked to the advantage of many this year because inflation was very high last September, leading to the uprate of state benefits in April.

"Given that the government did that last time, I think they probably will stick to existing policy," she said, before adding that that is subject to change and that "we have to wait to see what comes through".


How much is Brexit responsible for UK inflation?

Brexit has "undeniably" had an impact on inflation in the UK, says Money Basics author Peter Komolafe.

Leaving the EU had "a huge material impact" on the power of the pound, so importing products and services become more expensive, he told a Sky News Q&A this lunchtime.

"There's also the argument that because we don't have as many workers coming in, there are certain sectors that at the moment are having to pay more for labour - and that, ultimately, also pushes up the prices of products or services."

He points to other advanced economies in Europe, all of which have lower inflation than the UK, such as Germany at around 5%, and the US, where they have brought inflation down to 3%.


Interest rates rising doesn't just hurt mortgage holders

It is "important" not just to focus on the effects of interest rates on mortgages, says Alfie Sterling, chief economist at the Joseph Rowntree Foundation.

High interest rates are causing "pain across the economy", with 2.3 million families taking out loans just to pay for essential bills, he says. Rising rates will have a big impact on them.

Also, companies will be less able to borrow which means "slower job creation and slower wage growth".

"Rising interest rates really are constricting finances and economic activity," says Mr Sterling.


What should you do if you're about to re-mortgage - or take out brand new one?

While inflation has dropped more than expected, interest rates will still (probably) rise when the Monetary Policy Committee meets next on 3 August.

So what does this mean for mortgages? Should you sign up for a long-term, fixed-rate mortgage? Or something shorter?

"The worst thing you could do is take a back seat and decide 'I'm just going to sit this out,'" financial author Peter Komolafe told the Sky News Q&A.

"With a mortgage, you can start to shop around six months before your fixed term comes to an end and that means that you might be able to lock in a rate right now that could be potentially lower than what rates could be in 12 months or even six months' time," he explained.

He urged those in that position to take action urgently.

"If you are in a position right now where your mortgage is going to be coming to an end, get speaking to providers [and] to mortgage brokers right now, be proactive and try and get something locked in now."


How does cost of living adjust compared to inflation? ›

Inflation vs Cost of Living: What's the Difference? Inflation and cost of living are interconnected concepts, but they are not synonyms. Inflation describes a gradual increase in prices, while the cost of living is a snapshot of how much a person needs to spend at any given moment in time.

Does inflation cause interest rates to rise or fall? ›

In periods of higher inflation, mortgage interest rates tend to rise. This means that taking out a mortgage loan will become more expensive as higher interest rates lead to higher monthly home loan payments.

How does raising interest rates affect cost of living? ›

Higher Fed interest rates translate to more expensive borrowing costs to finance everything from a car and a home to your purchases on a credit card.

How high will interest rates go in 2023? ›

Mortgage Bankers Association (MBA) vice president and deputy chief economist Joel Kan. Kan expects mortgage rates to average 5.6% by the end of 2023.

Does inflation reduce the cost-of-living? ›

Inflation reduces the purchasing power of consumers, meaning that a unit of currency buys less than it did before inflation. 13 The cost of living measures the average cost of the accepted standard of living in a specific area. 14 Inflation can increase the cost of living.

What is the cost-of-living adjustment for 2023? ›

Key points. The Social Security COLA was 8.7% for 2023, the largest increase since 1981. The COLA increases Social Security payments to help benefits keep pace with inflation. As inflation subsides, COLA for 2024 is estimated to be around 3%.

What happens to interest rates when inflation falls? ›

In summary. The inflation rate and interest rates are intrinsically linked. When the inflation rate is high, interest rates tend to rise too – so although it costs you more to borrow and spend, you could also earn more on the money you save. When the inflation rate is low, interest rates usually go down.

Do interest rates go up if inflation is high? ›

Higher interest rates are generally a policy response to rising inflation. Conversely, when inflation is falling and economic growth slowing, central banks may lower interest rates to stimulate the economy.

Who benefits from inflation? ›

Who Benefits From Inflation. Inflation makes it easier on debtors, who repay their loans with money that is less valuable than the money they borrowed. This encourages borrowing and lending, which again increases spending on all levels.

Is it better to buy a house when interest rates are high or low? ›

Buying when interest rates are high could mean sacrificing on some levels, such as buying a smaller or more outdated home. On the other hand, there may be less competition amongst buyers, and sellers may be more willing to reduce prices.

Will interest rates go down in 2023? ›

As further Fed rate hikes remain uncertain, organizations like Fannie Mae and the Mortgage Bankers Association have forecasted declining average rates on 30-year fixed-rate mortgages throughout 2023, continuing into the first quarter of 2024.

Does raising interest rates help or hurt the economy? ›

Higher market interest rates can have a negative impact on the stock market. When Fed rate hikes make borrowing money more expensive, the cost of doing business rises for public (and private) companies.

What is the interest rate forecast for 2023 and 2024? ›

Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025. Morningstar analyst Preston Caldwell, on the other hand, is skeptical that the Fed will continue raising rates throughout 2023 and has predicted lower rates of 3.75%-4%.

How long will interest rates stay high? ›

Mr Wishart predicts that the base rate will rise just once more – to 5.25 per cent – but will remain there until 2024. “We think we're probably around the peak in mortgage rates now, but they will stay at this level until the middle of next year before starting to fall,” he added.

Will there be more interest rate hikes in 2023? ›

The Federal Reserve paused its hiking campaign in June, but forecast it will raise interest rates as high as 5.6% before 2023 is over, according to the central bank's projections released on Wednesday.

How do you adjust costs based on inflation? ›

The old inflation index is divided by the new inflation index, but that quotient (the ratio) is multiplied by the price. In the table below, after adjusting for inflation, the purchasing power of $2.50 in November 2000 was $3.14 in November 2010 and $4.28 in November 2000.

How is standard of living affected by inflation? ›

Inflation can affect the price of everything, from food and housing to transportation and clothing. And rising prices can drastically change your standard of living. Even moderate levels of inflation will reduce the value of your money over time.

What is cost of living adjustments in economics? ›

A cost-of-living adjustment (COLA) is an increase in pay or benefits designed to keep up with the rising costs of goods and services due to inflation. COLAs help keep people's earnings and living costs in proportion. Key takeaways. Inflation is one factor that makes goods and services cost more.

Is inflation making everything more expensive? ›

Since early 2021, everyday essentials, from groceries to gas, have become more expensive, reaching a record-high inflation rate of 9.1% in June 2022. Earlier last year, the Fed began aggressively raising interest rates in an attempt to slow down the economy and curb prices by reducing consumer borrowing.

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