Inflation is down, and that’s good news

Inflation is down, and that’s good news

It’s fair to assume that, at some level, those with enough money to be able to invest in property are wealthy individuals who have a decent amount of money behind them in order to earn a further income.

Within that, it’s further fair to assume that property investors have a good working knowledge of finance and wider economics, so the news this week that inflation has been dropping should be welcomed in these current times, where uncertainty and economic shock can quickly drive up inflation and prices.

Thankfully, the UK is something of a prime example of stability and despite some worrying figures being thrown around within the past few weeks about GDP, there are plenty who are banking and betting on a V-shaped recovery.

A quick and strong recovery is certainly a growing possibility, given that the Bank of England recently announced a large monetary intervention into the economy, pumping £100 billion into government bonds, allowing them to spend more money supporting the economy.

This will likely keep demand steady and drive up prices in stocks, shares and the property market as the UK economy emerges from lockdown and into some form of new normality, with most of the economy expected to have re-opened by the end of July.

Low inflation

Last week it was announced that inflation in the UK had fallen to just 0.5% in May, a near four-year low, which was welcomed as good news in the current climate by the UK’s investors.

With economic uncertainty and the short-term shock experienced earlier in the year, this has meant that investors have been able to keep the value of their investments stable, and has meant that with increased yields and rents, that their value has actually increased.

With a surge in demand following lockdown restrictions, demand has been quickly outstripping supply which has then driven rents slowly up since markets re-opened in May.

Many estate agents were reporting record busy months following the lifting of restrictions, and with the market unable to keep pace by supplying new properties, leaving landlords and property investors in a strong position.

With rents increasing but inflation staying low, this has meant that property values have increased, relatively, to pre-pandemic levels, meaning strong returns.

Inflation for the rest of the year

According to The Guardian, ‘The Office for National Statistics said the biggest impact on May’s fall in inflation – the lowest since a similar rate in June 2016 – had come from the cost of transport, with low global oil prices leading to a drop of almost 3p a litre in the cost of petrol.’

Given that it’s not expected that workers will return to their normal office working lives for some time, it’s reasonable to expect the situation to remain the same probably through to the end of the year.

Demand for oil and petrol are unlikely to increase significantly even with the whole UK economy back up and running, with most continuing to work from home, and other factors are likely to remain stable too.

This, it should be said, would spell good news for property investors and landlords in the medium term, and will probably encourage many to look to invest further and increase their portfolio’s.

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