UK inflation has increased to 3.4% in the 12 months to December, the Office for National Statistics reveals.
December’s figures was 0.2% higher than the 3.2% reported in November.
Alcohol and tobacco, and transport made the largest upward contributions to the monthly change.
While today’s rise in inflation wasn’t unexpected, L&C Mortgages associate director David Hollingworth says it “is a larger bump than many anticipated”, meaning borrowers may have to wait for another rate cut.
In December, the Bank of England lowered the base rate by 0.25% to 3.75% as widely expected.
During the meeting, the Monetary Policy Committee said: “Although above the 2% target, it is now expected to fall back towards target more quickly in the near term.”
However, Hollingworth says a rise in inflation “could be enough for the Bank of England to pause any thought of another cut when they meet in February”.
He adds: “Fixed rates are already factoring in further reductions to base rate, but the Bank of England has been clear that those will only come when it feels confident that the downward path for inflation is sustainable.”
“Fixed mortgage rates have seen continued improvement in the new year, having already fallen before the end of the year. Today’s news isn’t likely to see a major market reaction that undoes all that positive movement, but it could mean that we’re in for a period where the brakes are applied and mortgage rates flatten out.”
“On the upside, the fixed rates on offer are at their lowest level since 2022, which is good news for those nearing the end of a deal and considering their next move.”
Meanwhile, Just Mortgages and Spicerhaart chief executive John Phillips comments: “A jump in inflation in December may not be too much cause for concern, so long as it is a seasonal blip and not the start of inflation rising. It is hoped that once the Christmas effect works its way through, we see a return to the good progress made on easing inflation.”
“Without another update until after the MPC decision in early February, this will be the central bank’s most recent reference point. Add in continued geopolitical and economic uncertainty, and I’d be surprised to see anything but a hold when the bank next meets in a couple of weeks.”
Also commenting, LSL Financial Services chief distribution officer Emma Hollingworth states: “Today’s inflation reading will only serve to reinforce the Bank of England’s cautious approach.”
“While we expect two cuts this year, a return to rising inflation may have set back future rate cuts. It may be that we don’t see the BoE move now until the Summer, once there is greater confidence that we won’t see another surge in price pressure.”
“This means we shouldn’t expect much movement in fixed rate mortgages in the immediate future. Swaps have been largely flat for months, suggesting that markets have already priced in any future interest rate cuts. That said, strong competition between lenders could still see pricing edge lower.”
