Inflation rises to 4% – Mobile & broadband prices set to increase again

It was widely predicted that the UK inflation rate would fall to around 3.8% in December, however, we instead saw a reversal of the downward trend with figures coming in at 4.0%, 0.1% up on the 3.9% figure recorded in November. The surprise increase published this week can be largely attributed to the rising cost of alcohol and tobacco, thanks in part to the increase in tobacco duty following the Autumn Statement. It is the first time that inflation has risen for 10 months, with many now speculating whether it could signal a more cautious approach to interest rate changes from the Bank of England than had been predicted. In this article, we take a look at how the latest inflation figures are likely to impact interest rates in the coming months, as well as the likely effect on mobile and broadband bills.

Will the latest inflation figures affect interest rates?

Back in December, markets were predicting that the Bank of England base rate could be cut to around 4.8% by July 2024, however, the latest inflation figures have cast some doubt on whether that is still likely. Back in November, Andrew Bailey, Governor of the Bank of England, had highlighted the dangers of underestimating the persistence of UK inflation, stating "We are concerned about the potential persistence of inflation as we go through the remainder of the journey down to 2%, and I think the market is underestimating that".

Prior to December's inflation figures, the market was pricing in an 80% probability that the first rate cut would arrive by May 2024, however, this reduced to 55% following the announcement. There are still some positive signs; food inflation continues to fall and, combined with lower energy price predictions, rate cuts are still likely to materialise, though perhaps later than many had hoped. For the latest analysis on when interest rates are likely to be cut, check out our regularly updated 'Interest rates predictions' article.

Why rising inflation is bad news for mobile and broadband customers

Most broadband and mobile phone providers apply 'mid-contract' price rises as standard. These are price rises that are baked into the contract, most commonly at a set rate of 3.9% plus December's rate of inflation. This means many broadband and mobile phone providers are likely to announce mid-contract price rises of 7.9% in the coming weeks. A 7.9% increase on a £30 Mobile bill equates to an increase of £28 per year or £2.33 per month. Ofcom, the telecoms watchdog, estimates that around 36 million mobile customers and around four in ten broadband customers currently have contracts that are subject to mid-contract price rises linked to inflation. While there are no rules or regulations to prevent this, Ofcom has threatened to ban the practice, stating that it is confusing and that increases should be communicated up-front in "pounds and pence".

While a 7.9% mid-contract price rise will come as a nasty surprise for some, the practice isn't new. Last year we reported that many mobile and broadband providers were set to apply a mid-contract price rise totalling 14.4%, following inflation figures of 10.5% for December 2022.

There is, however, some positive news for mobile phone and broadband customers. BT has announced this week that it will be changing its mobile and broadband price rise policy. While it will proceed with a 3.9% plus inflation increase from March this year, it will adopt a new policy in the summer of 2024. This change will see mid-contract price rises quoted in pounds and pence, with mobile plans starting at £1.50 and broadband bills starting at £3.00.

Useful resources

Read our article 'Broadband price increases for 2023 – Provider price hikes revealed' for more information about mid-contract price rises, including where you stand should you wish to cancel or switch providers.

We've also listed some other useful resources below:

• How to switch mobile network provider with a text message
• How to switch broadband provider
• When is the best time to switch broadband?
• How to cancel BT broadband
• How to cancel Vodafone broadband
• How to cancel EE broadband
• How to cancel TalkTalk broadband
• How to cancel Now TV broadband
• How to cancel Plusnet broadband