The UK’s inflation rate hit 2.3% last month, up from 1.7% in September, breaking through the Bank of England’s 2.0% target and putting further base rate cuts in serious doubt.
The shock rise in the Consumer Price Index (CPI) is being attributed to higher energy costs and the rising energy cap, with the typical heating bill going up by £149. The CPI measures the overall change in consumer prices based on a representative basket of goods and services over time.
The cost of many raw materials has been falling, though but wage inflation has been creeping up and the fear is that the Government’s ‘tax and spend’ Budget and especially the rises in the minimum wage and employers’ NI contributions will further stoke inflation.
The news is not only likely to hit hopes of a falling base rate cut but it is also likely to put the brakes on falling mortgage costs.
Market reaction
Nathan Emerson, CEO at Propertymark, says: “It is disappointing to see that inflation has increased considering the overall trend throughout the year. However, there are many national and global factors that impact the UK economy, hopefully inflation will better stabilise, and the UK economy should continue to adapt, no matter what happens in response to national and international events.
“With housing playing a vital role in the growth of the economy, over time it would be positive to see interest rates drop to levels not seen since 2019, in order that more people can afford to enter the housing market for the first time or make their next all-important home move.”
Ben Thompson, deputy CEO at Mortgage Advice Bureau, comments: “Inflation rising isn’t the best start to the festive season for those looking to remortgage or get onto the property ladder. With inflation rising, and the Bank of England signalling its restraint in cutting the interest rate, it is possible that mortgage rates could stay higher for longer.”
Peter Stimson, head of product at lender MPowered Mortgages, says that anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon. He adds: “After spending one solitary month below the Bank of England’s 2% target, consumer inflation has leapt back into warning territory. At 2.3%, annual CPI is barely a fifth of the painful 11.1% it reached in October 2022. But this abrupt move in the wrong direction is a setback for the Bank’s rate-setters, who are duty-bound to get inflation down to 2% and keep it there.
“The return of inflationary pressure means the Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.”
Douglas Grant, group CEO at Manx Financial Group, says that the rise in UK inflation, coupled with wider anticipated global inflationary pressures from President Trump’s trade tariffs and tax policies, are likely to result in higher interest rates for longer. He adds: “This scenario exerts significant pressure on businesses, amplifying investment hesitancy and underscoring the critical need for businesses to adapt their lending strategies to withstand ongoing market uncertainty.
“Recent data from Manx Financial Group reveals an improvement, with nearly a third of UK SMEs scaling back or pausing operations due to financial constraints - down from 40% in 2023. However, around 10% of SMEs continue to face challenges in accessing external financing. Given their pivotal role in fostering growth, employment, and innovation, creating a stable and supportive lending environment is crucial.
“Achieving this requires focused efforts by the Labour Government to improve credit access while managing inflationary pressures. Collaboration between traditional and alternative lenders is also necessary to ensure SMEs receive the financial support needed to navigate rising taxes, geopolitical instability, and cost-of-living challenges.”
Alice Haine, personal finance analyst at Bestnvest, says: “While the rate-setting Monetary Policy Committee is likely to consider other data points aside from the headline inflation rate when they deliver their next interest rate decision – such as the cooling jobs market and slowing economic growth in the third quarter of the year – Labour’s spending and tax plans in the October 30 Budget have thrown a spanner in the works.
“The BoE has already warned that Chancellor Rachel Reeves’ changes may push up the cost of living with major businesses also wading in to raise the alarm over the effect hikes in business taxes will have on inflation. “
However, Paresh Raja, CEO of specialist lender Market Financial Solutions, struck a more optimistic note, saying: “After years of sky-high inflation, any uptick in the CPI figure is understandably met with a healthy dose of trepidation. But the economy has turned a corner, and inflation will now regularly rise and fall – so long as it hovers close to the 2% target, smaller shifts are perfectly fine.”
