Unforeseen inflation rise impacts UK economic landscape.
- October inflation reaches highest rate since April 2024.
- Inflation now stands at 2.3%, influenced by rising energy costs.
- Experts predict a pause in interest rate cuts by the Bank of England.
- Potential rate stability may prolong elevated mortgage rates.
The UK has experienced an unexpected rise in inflation, disrupting the prevailing economic outlook. In October, the inflation rate climbed to 2.3%, marking its highest point since April 2024. This surge is primarily attributed to increased household energy bills, following a recent hike in the energy price cap.
Inflation’s rise to 2.3% in October has taken industry experts by surprise. Previously, inflation lay below the Bank of England’s 2% target, a first since April 2021. After meeting the target in May and June, July saw a rise to 2.2%, holding steady through August. Core inflation also saw an uptick, rising to 3.3% in October, while services inflation increased to 5%.
Given the higher-than-expected inflation figure, various industry experts now anticipate that the Bank of England will maintain interest rates in its December meeting. This scenario presents challenges, particularly for individuals seeking to remortgage or enter the property market. Ben Thompson from the Mortgage Advice Bureau cautioned that mortgage rates might stay high longer than intended due to these inflationary pressures.
Financial leaders like Derrick Dunne of YOU Asset Management highlight that households and borrowers are bearing the brunt of these rising costs. The 10% rise in the energy price cap, enacted in October, coupled with anticipated policy measures from the recent budget statement, creates an inflationary environment that complicates interest rate cuts. Hence, additional rate reductions by the Bank may be postponed.
In 2025, the pace of interest rate cuts might slacken significantly, according to Peter Stimson from MPowered Mortgages. He notes that although these developments were expected to some degree, there remains no immediate relief for lenders, who may not lower rates for new customers during the festive period.
George Lagarias from Forvis Mazars summarised the situation by stating that any additional initiatives will be required to stabilise inflation around the target of 2%. With the Bank unlikely to reduce rates in December, priorities seem to have shifted towards managing growth.
However, differing views exist within the financial community. Isaac Stell from Wealth Club noted the economic dilemma facing the Bank of England, with inflation rebounding yet economic growth stalling. Although a December rate cut could potentially ease consumer hardships, such a move would counter traditional economic practice during inflationary periods.
Paresh Raja of Market Financial Solutions expressed cautious optimism, suggesting that despite frequent fluctuations, keeping inflation close to the 2% target could allow rate cuts to continue gradually into the next year. It remains uncertain, but a final base rate cut before year-end is not entirely dismissed.
UK’s inflationary landscape suggests prolonged higher mortgage rates as economic responses evolve.
