Tune out the noise about house prices which, the Office for National Statistics (ONS) has confirmed, fell by 2.1 per cent in the 12 months leading up to December 2023, for a moment. And spare a thought for private renters.
The inflation crisis is far from over for this demographic, which comprises more than 4.4 million households in England alone. In fact, it may only have just begun.
Official data from the ONS show that prices paid by private renters across the UK are still rising above the overall rate of inflation. They rose by 6.2 per cent in the 12 months leading up to December 2023.
In Wales, they rose by 7.1 per cent, and in Scotland by 6.3 per cent.
Between September and December 2023 alone, private rents across the UK increased by 1.7 per cent.
Analysis by Rachelle Earwaker, a senior economist at the Joseph Rowntree Foundation – an independent organisation that researches poverty – confirms that this will eat into the Government’s increase to the Local Housing Allowance. This comes into effect in April and is intended to support low-income renters. However, the increase is based on September 2023 rents.
Politicians do not control inflation. This week, they might wish they did. 2023 ended with the Conservative Government claiming victory after the rate of inflation fell to 3.9 per cent in November.
On Wednesday, in the cold light of January, the ONS’s latest data show that the rate of inflation rose to 4 per cent in December. That’s double the Bank of England’s 2 per cent target.
This might seem like a small increase, it might sound insignificant. But the reversal of the downward trend in the rate at which the cost of goods and services increases is a reminder that there will be bumps in the road, that nothing can be taken for granted.
The future of the cost of living remains uncertain but one thing’s for sure: housing is most people’s largest outgoing and it’s much, much more expensive than it was in 2020 – the year that the coronavirus pandemic started, contributing to the inflation crisis.
For private renters who, on average, have less in savings than homeowners, this hurts. They are, as Earwaker puts it, “disproportionately impacted by the cost of living crisis”.
On top of expensive rents, they also have to grapple with higher food costs. Food inflation is down from 9.2 per cent which is welcome, but remains very high at 8.0 per cent.
Add to that the fact that energy bills are 80 per cent higher than they were 3 years ago and you have all of the evidence you need to confirm that the cost of living crisis is far from over.
“Private renters are also most likely to be living in energy inefficient homes,” Earwaker told i. “Energy prices have outpaced benefits and wage increases.”
Wages did increase last year. But they did not grow as much as expected in the final part of 2023. Regular pay was up by 6.6 per cent, not 7.3 as expected. In short, wages barely grew after the summer.
It’s not entirely surprising that the overall rate of inflation is stickier and harder to bring down than the Government would like it to be. The world is a volatile place right now.
The overall outlook remains the same, the rate of inflation is on a downward trajectory. However, the news of a slight rise means cuts to the Bank of England’s base rate may not be coming as quickly as some, such as the right-wing free market think-tank the Institute for Economic Affairs, would like.
For private renters, however, as former Treasury adviser and economist Ian Mulheirn told i, “things will get harder from here, not easier, because affordability will deteriorate”.
It will also not be easy for private renters to claw their way out of the rent trap by becoming homeowners.
Rising rents mean that they will have less disposable income to save and, following the news that inflation has risen to 4 per cent, swap rates – this is how the price of mortgages is calculated by lenders – went up. This will mean that borrowing to buy a home is likely to remain more expensive than it was in 2020 for a while yet. That, in turn, means that homeownership is not affordable at all, even if you factor in the moderate house price falls recorded by the ONS.
The pain is not over for homeowners, either. There are still 1.5 million households waiting to remortgage this year and their finances will be burned by mortgage rates which, even at 4 or 5 per cent (which is where experts at Capital Economics expect them to settle later in the year) are much, much higher than they were pre-pandemic.
The inflation crisis remains much the same. But the housing crisis is deepening and, once again, it is private renters who are at the sharp end.