Inflation in the UK climbed to 9% in April, the sharpest rise in 40 years, according to the Office for National Statistics (ONS).
Last month, the ONS reported inflation hitting 7% in March, which was the highest inflation level seen in March since 1992, which was recorded at 7.1%.
The latest figure is driven by increases in fuel prices, energy and food costs.The ONS reported that energy prices rose by 46.5% on the month, with electricity up 40.5% and gas 66.8%, as the Ofgem price cap was increased.
Earlier this month, Monetary Policy Committee (MPC) member Michael Saunders said that, in his opinion, inflation may exceed the 10% peak forecast for Q4 2022 in the latest monetary policy report (MPR).
Saunders explained that the MPR forecast assumes several economic factors, including weakness in spending, cuts in employee hiring – with unemployment rising – and supply chain problems easing.
The report forecast expects inflation to fall to “slightly above” 2% two years later.
However, Saunders details a belief that demand will be more resilient than the MPR forecast calculates.
On 5 May, the Bank of England (BoE) increased the base rate by 25 basis points to 1%, the highest level since 2009.
The MPC voted by a majority of 6-3 to increase the bank rate by 0.25 percentage points, to 1%. The members in the minority voted to increase the bank rate by 0.5 percentage points, to 1.25%.
The increase marks the fourth base rate rise since December 2021.
LiveMore managing director of capital markets and finance Simon Webb says: “The latest rise in inflation to 9% will increase the chance of the BoE’s MPC lifting the base rate in June, potentially by as much as 0.5%. This was the preferred option of three of the nine MPC members at their last meeting in early May.”
Webb says that another increase will be “a real blow for mortgage borrowers on variable rates whose monthly payments have potentially already gone up four times in five months”.
“Now is the perfect time for borrowers to lock into a long-term fixed rate mortgage and this will be especially advantageous for borrowers aged 50 to 90+. Many of the upper part of that age group are unlikely to want to move home again so knowing exactly what their monthly payments are will give them peace of mind,” he adds.
Meanwhile, Habito vice president of lending operations Alan Fitzpatrick comments: “The ‘winners’ from rising inflation are borrowers on longer fixed-rate deals. These homeowners know that their monthly repayment amounts will stay the same for years, and won’t be subject to the types of shocks we’ve seen in energy, food, and petrol bills. However, those on shorter fixes, or with deals expiring soon, could face a bit of a rate shock when they come to remortgage.”
“For homeowners with deals expiring in the next six months, now is the time to look at whether fixing their mortgage costs is the right course of action. Mortgage rates are rising, but there are lenders out there which allow you to lock in a deal six months early.”
“Long term fixed rate mortgages could also be worth considering for homeowners wanting more certainty over their repayments. Not only do long-term fixes offer homeowners protection from rising interest rates, but as inflation rises, the ‘real’ cost of repaying today’s mortgage grows cheaper over time. Essentially, homeowners can repay the loan in ever-cheaper pounds, which can ease the cost of borrowing.”
