Inflation hits 3.5% in September and ‘cements expectation’ of base rate rise
The UK’s inflation rate hit 3.5% in the year to September, according to the Office for National Statistics (ONS).
This is up from 3.1% in the previous month.
Month-on-month, the Consumer Prices Index (CPI) was up by 0.4%.
The CPI including owner-occupiers’ housing costs (CPIH) also rose in the 12 months to September, going up by 3.6% versus 3.3% in August.
The ONS largely attributed the rise to fuel prices, which it said made the most significant upward contribution to both the CPIH and CPI annual figures. Meanwhile, it said hotels and restaurants made the largest, partially offsetting, downwards contribution.
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Potential impact on base rate decision
Today’s figures were higher than expected, and given the trend in the wrong direction from the Bank of England’s target of 2%, industry figures have suggested that the likelihood of a base rate increase is now even higher.
David Hollingworth, associate director at L&C Mortgages, said: “It was expected that the rate of inflation for September would rise, but today’s figure of 3.5% is higher than most anticipated, driven by rising fuel prices.
“That will do nothing to ease the recent upward pressure on mortgage rates and is likely to cement expectations of a base rate rise to come in November. The Bank of England has already stated that the longer that energy prices remain high, the greater the risk of persistent inflation.
“That won’t make life for embattled homeowners any easier. A rate rise will push up payments for tracker borrowers and although there’s been some examples of lenders easing their fixed rates back a touch, the overwhelming direction for fixed rates in recent months has been up.”
He continued: “Despite the surge in fixed rates, most mortgage borrowers will prefer the security that they offer, especially as there’s so much uncertainty still at play. Those coming to the end of a current fixed deal will not only face higher rates but also a more volatile market where deals can come and go quickly.
“Securing a rate earlier to protect against further increases and then reviewing again before completion has become the name of the game.”
John Phillips, CEO of Just Mortgages and Spicerhaart, said: “Fuel forecourt price boards have provided consumers with a very visible reminder of inflationary pressures in recent weeks. The rise in CPI inflation to 3.5% reflects these renewed cost pressures, particularly around fuel and energy, against a continued backdrop of geopolitical uncertainty. The wider economic picture though, remains mixed, with the latest GDP figures showing the UK economy continuing to grow, suggesting that there is still some resilience despite the pressures facing households and businesses.
“’Mixed’ is still probably the best way to describe the mortgage market, as we continue to see lenders moving rates in both directions as they balance prudent pricing against the need to remain competitive. All eyes are now on next week’s Budget, with both borrowers and lenders looking for greater clarity on the government’s plans. While this naturally causes some to pause as they await any positive announcements, there are still movers and buyers active in the market. As ever, expert advice remains critical in helping clients navigate an ever-changing market.”
