The latest inflation rate figure released by the Office for National Statistics (ONS) is 3%. This is an increase from 2.5% and a concerningly higher figure than the anticipated 2.8%. UK inflation has now hit a 10-month high, making it unlikely that interest rates will be cut again in March.
What has caused the latest inflation rate to rise?
The sharp increase to 3% in the year to January has largely been attributed to airfares. They didn’t fall as much as they usually do in January, with a decrease to 19% this year as opposed to a bigger drop of 38.9% last January.
Private school fees are another factor that has caused inflation to increase. A ruling came into effect on 1st January to charge VAT on private school fees. This has led to a 13% increase in fees for the month compared with no increase last year, according to the ONS.
Food and non-alcoholic drinks costs have also increased, particularly the costs of bread, meat and cereals. At the same time last year, these costs had fallen.
How will this affect interest rates?
The Bank of England has projected that inflation will continue to increase during the year, reaching a peak of 3.7%. This prediction is based on higher energy costs and regulated price changes, such as bus fares and water bills. Wage growth and improvements in services inflation, however, are expected to continue.
As such, the Bank of England is likely to continue with its cautious approach to cutting interest rates. With inflation now standing at its highest level since March 2024, a further cut to the current base rate of 4.5% is unlikely to happen next month. According to market predictions, two more rate cuts are expected this year.
House prices are still increasing
The latest inflation figures show that house prices in the UK increased by 4.6% in the year to December. According to data from the ONS, the average house price in the UK in December increased to £268,000. In England, the average house price for this period was £291,000 while in Scotland the average was £189,000 and in Wales the average was £208,000.
This is possibly due to the rush by buyers to get ahead of the stamp duty changes that will take effect on 1st April. Currently, no stamp duty is payable for a residential property up to a value of £250,000 but the new threshold will be lowered to £125,000. First-time buyers currently benefit from buying a residential property up to a value of £425,000 without having to pay stamp duty. From 1st April, however, this threshold will decrease to £300,000.
Average UK rents have also risen, with an increase of 8.7% in the year to January. The average rent in January in England was £1,375 while the average was £995 in Scotland and £780 in Wales.
Get expert, impartial mortgage advice
Whether you’re looking to get on the property ladder, move up it, make an investment or add to your portfolio, we can help. Just give us a call on 01322 907 000 for expert, impartial advice on mortgages, bridging loans, auction finance and more. Whatever type of property finance you’re looking for, our mortgage brokers can search for the best deals and tailor your application to meet your needs.