Heated clashes at Liverpool City Hall call for increased councilor protection | Leicestershire Live

Inflation measures the change in the prices of goods and services in the economy. A drop in inflation means prices are now rising more slowly.

Combined with rising wages, this makes the cost of living more affordable as you can buy more with your pocket money. This means being able to save more, buy more goods and services and enjoy a better quality of life.

A Treasury economist explains exactly what falling inflation means for you.

READ MORE: Leicester Square: Disagreement reigns supreme among residents over new plans

How will lowering inflation help the economy?

Lower inflation supports people by maintaining the purchasing power of their money. If prices rise slowly, people can plan their budgets more effectively, encouraging spending and investment, which fuels the economy.

Lower inflation also helps businesses grow by providing a stable and predictable environment for them to operate, allowing for more employment opportunities or the ability to research new products and services. Finally, low inflation enhances the UK’s competitiveness in a global market. When the economy is stable and predictable, other countries are more interested in investing in the UK.

This can bring in more money from foreign investors, give us better trade deals and make the overall economy stronger.

How will lower inflation help my business?

If inflation is lower, it means that the cost of the materials that companies use to produce their goods and services is not rising as quickly, reducing the need for them to pass price increases on to their customers. Take a coffee shop as an example; they won’t face significant increases in the cost of coffee beans, paper cups, or the energy needed to light the store.

Since none of these items become drastically more expensive, there is no need to pass these costs on to the price of coffee for their customers. Lower inflation gives businesses a sense of stability, which is crucial to enable them to make future decisions.

High and fluctuating inflation prevents businesses from planning their future spending. For example, if you are considering investing in a factory that will take a year to build, it is vital to know the expected costs in one year.

What does a drop in inflation mean for my credit?

Inflation affects mortgage rates indirectly through financial market expectations of the Bank of England’s base rate. The base rate of interest, also known as the Bank Rate, is the tool used by the Bank of England to reduce inflation.

Mortgage prices are usually based on what the financial markets anticipate future interest rates will be. This implies that if markets begin to anticipate higher inflation, they will raise their expectations for the Bank Rate with the aim of cooling the economy and bringing inflation back to target.

This is subsequently reflected in mortgage interest rates. If inflation falls faster than anticipated, it could lead to a decline in market expectations for the base interest rate and, consequently, a reduction in mortgage rates on offer.

Now we bring you the latest updates on WhatsApp first