Improving optimism about the economy has raised consumer confidence to its highest since January last year.
The Office for National Statistics said this week that inflation fell last month from 6.8 per cent to 6.7 per cent, confounding forecasts of a rise to 7 per cent. The surprise fall in inflation helped convince the Bank of England to hold interest rates at 5.25 per cent, the first pause in monetary policy tightening since November 2021, after 14 straight rate rises.
The statistics office said this month, in a retrospective GDP upgrade, that the economy had rebounded to its pre-pandemic size by the end of 2021. It had been thought that GDP was about 0.2 per cent smaller compared with pre-Covid levels, but after the upgrade it is about 1.5 per cent bigger.
As a result, The Bank of England held its interest rates, ending a run of 14 consecutive increases.
On 22 September 2023, the Bank rate, set by the Monetary Policy Committee, was unchanged from the previous month at 5.25%.
Sue Robinson, Chief Executive of the NFDA spoke publicly about the freezing of interest rates saying:
“The Bank of England has kept interest rates the same following fourteen consecutive rises since December 2021. As inflation fell to 6.7% in August, it proves that these increases were effective and were a necessary action to stabilise the economy.
“Franchised dealers, the customer facing side of the industry, continue to offer flexible payment schemes and competitive price points so that they can cater for consumer's spending budgets whilst interest rates remain high. The car market continues to perform strongly, with the basic need for private mobility and freedom to transport ever present.”
Although the current rates are still more than three times the Bank's 2% target, it has influenced the decision to pause the run of Bank rate rises. That decision was split, with five of the nine-member committee voting for a pause.
Policymakers will be keeping a close eye on the "core inflation" rate - a measure which strips out volatile factors such as food and energy. It was down from 6.9% in July to 6.2% in August, but the chances of rates actually starting to fall again look slim at the moment.