Figures released for the year to October show an inflation rate rise to 2.3%, the sharpest increase for 2 years. This is higher than the 2.2% predicted by economists and expected by the Bank of England (BoE). Despite the previous downward trend for inflation, with a rate of 1.7% in the year to September, a rise in energy prices has caused this increase, with the rate last being this high 6 months ago.
What has caused the inflation rate to rise again?
The price cap for domestic energy prices has been removed, resulting in an increase in gas and electricity bills. The removal of this price cap, set by Ofgem, increased household energy bills by an average of £149 in October.
Another contributing factor is natural gas prices, which have increased significantly by 30% compared with last month. This hike that hasn’t been completely offset by lower oil and petrol prices. Services inflation increased to 5% in October from 4.9% the previous month, with a rise in airfares contributing to this. Alcohol and tobacco prices increased significantly although inflation for food prices was relatively unaffected. Falls in live music and theatre ticket prices helped to curb the rise in inflation.
What does this inflation rate rise mean for interest rates?
The current base rate stands at 4.75%, having been cut for the second time this year following the Monetary Policy Committee’s review in November. A further base rate cut had initially been anticipated for December. However, hopes for this were pushed back to February following the Autumn Budget. As inflation is now back above the BoE’s target rate of 2%, a delay in interest rate cuts to February seems more certain.
Get expert advice from our mortgage brokers
At a time when mortgage rates have already seen an increase following the Autumn Budget, you may be left feeling worried following this higher-than-expected inflation rate rise. Our mortgage brokers are here to help you with your mortgage concerns.
Just give us a call on 01322 907 000 to discuss your current mortgage deal and situation and we’ll go through the options that are available to you. Offering impartial advice, we’ll ensure that you’re able to make an informed decision, choosing the best solution for your needs.