Why has inflation gone up?
CPI inflation has risen from 1.7% in September to 2.3% in the year to October 2024, meaning it now sits higher than the Bank of England's target inflation rate of 2%. While price rises have increased in a number of areas of consumer spending, the most significant factor for higher inflation in October is down to increased costs in housing and household services. Costs in this area have risen by 5.2% compared with 3.8% in the year to September and outweighed marginal downward trends in recreation and culture as well as communication.
The Office for National Statistics (ONS) reports that household costs rose sharply due to the rise in the energy price cap set by Ofgem at the beginning of October. At its quarterly review, Ofgem increased the energy price cap by 9% from £1,568 to £1,717 based on the average annual bill for a dual-fuel household. The increase came after two consecutive decisions to reduce the cap, reflecting higher expected energy prices. Price rises in this area have been put down, in part, to the continuing conflicts between Russia and Ukraine as well as in the Middle East.
Electricity and gas prices have risen by 7.7% and 11.7%, respectively, but remain much lower than the peaks experienced towards the end of 2022 and into 2023. Independent energy experts, Cornwall Insight state, “Given the price cap rise in October, many will have been hoping to see a fall in the cap for January. Unfortunately, forecasts show that prices will be staying relatively high for the remainder of winter.”
Many households will be concerned about the cost of heating their homes and keeping families warm this winter so fixing your energy price could help provide security against more cost rises. Additionally, those who fell victim to the recent cut to the winter fuel payment may wish to see if they qualify for pension credit.
What will the increase in inflation mean for interest rates?
The Bank of England base rate, which influences interest rates charged by banks, has been cut twice since August this year, having remained unchanged since September 2023, giving hope to many that rates would begin to fall.
However, the announcement of inflationary measures in the Autumn Budget by the Chancellor of the Exchequer, combined with other global phenomena such as the election of Donald Trump in the US and ongoing conflicts around the world, will only act to further caution the BoE from announcing further cuts. Having voted by a majority of 8-1 in November to cut the base rate by 0.25%, the Monetary Policy Committee are now predicted to hold the base rate at its current level of 4.75% when they vote again in December.
We explain more in our article, “Will interest rates continue to fall in 2024 & how low will they go?”.
How will the rise in inflation affect mortgages and savings?
Today’s inflation news is unlikely to be good news for borrowers waiting for interest rates to fall, as the market has already shown signs of an upward trend which may begin to settle over the coming weeks. What is clear is that mortgage holders and housebuyers should secure a mortgage deal sooner rather than later in case of further increases.
Mortgage lenders have been repricing many of their products over the last two weeks despite the base rate cut earlier this month. This was largely due to an expected rise in inflation and the wider uncertainties facing the economy. Many lenders tweaked interest rates across a range of mortgage products that have meant that average fixed-rate mortgage deals have risen. For example, an average 2-year fixed rate deal has climbed from 5.37% in the middle of October to 5.50% 4 weeks later. We’ve also seen all sub-4% mortgage deals disappear from the mortgage market. You can find a variety of regularly updated mortgage deals in our article “Best mortgage rates in the UK” or you can search for the best mortgage deal based on your own circumstances using our mortgage rate comparison tool, which searches over 90 lenders’ mortgage rates.
Saving rates have fallen across a range of products, but according to financial analysts Moneyfacts, over 1,600 savings accounts still provide inflation-beating rates, and it is still possible to secure savings rates over 5% on ISAs and Notice Accounts. Savers looking to secure the best offers will find these in our article, "Best savings accounts in the UK" which we update regularly.
Things you can do if you are struggling with bills and mortgage payments
If you are struggling to pay bills or your mortgage payment, you should talk to your provider, whether this is your energy supplier or your mortgage lender. By talking through your situation, you may be able to get access to a better rate or method of payment to alleviate the difficulty you face. You should also ensure that you are claiming any benefits that you qualify for, and you can do this easily by using the online benefits calculator tool entitledto. There are a wide range of organisations that can point you towards extra help in these circumstances, and we have listed these below.
Book a free financial review
Looking to ensure your finances are on track? Our partner Unbiased will arrange for a qualified, FCA-regulated adviser to contact you
- Discuss your financial situation
- Identify what steps, if any, you should take
- Free and without obligation
