UK inflation has increased sharper than markets expected in October to 2.3%, the latest Office for National Statistics reveals.
The increase was driven by higher household energy bills, as markets predicted it would.
While it was widely anticipated that inflation in October would exceed the Bank of England’s target of 2%, markets did not predict that it would reach 2.3%.
L&C Mortgage associate director David Hollingworth says: “Although the rate lifting above target is not a shock, at 2.3% it is a little higher than many had expected. That will pour more cold water on the prospects for another cut to base rate to come next month, which will be disappointing news for those on a variable or tracker rate mortgage.”
In early November, the BoE cut the base rate by 0.25% from 5% to 4.75%. The Monetary Policy Committee voted in an 8 to 1 split in favour of cutting the rate.
Catherine Mann was the sole vote against cutting borrowing costs at a meeting of the BoE’s rate-setting committee.
Last week, Mann warned that high energy prices may push up inflation and slow pace of rate cuts, suggesting that fuel prices were more likely to rise than fall over the coming years.
April Mortgage director Rachael Hunnisett comments: “Inflation soaring back above the Bank of England’s 2% target is a fresh blow for borrowers, effectively ruling out any chance of a base rate cut in December.”
“The Bank has previously indicated that lower inflation would help to drive further rate cuts, but this spike changes the economic outlook.”
“Mortgage rates have been creeping up since the Budget and may be further impacted as a result of today’s announcement, which is higher than most market expectations. These recent rate changes are a sign of how quickly the mortgage market can reverse course.”
Meanwhile, MPowered Mortgages head of product Peter Stimson states: “Anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon.”
“After spending one solitary month below the Bank of England’s 2% target, consumer inflation has leapt back into warning territory. At 2.3%, annual CPI is barely a fifth of the painful 11.1% it reached in October 2022. But this abrupt move in the wrong direction is a setback for the Bank’s ratesetters, who are duty-bound to get inflation down to 2% and keep it there.”
“The Bank had already predicted inflation would rise above the 2% threshold, but the Government’s ‘tax and spend’ Budget is likely to stoke inflation further in 2025.” “With CPI already rising, inflation is once again a worry for anyone planning to buy their first home or remortgage in the coming months.”
“The return of inflationary pressure means the Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.”
“While this was to a large extent expected, it doesn’t offer any relief to mortgage lenders and is unlikely to allow them to reduce the interest rates they offer to new customers in the run up to Christmas.”
“Looking ahead to 2025, the pace of Base Rate cuts is now likely to be ‘slower and lower’ than it was just a few weeks ago, and this is being reflected in a rising swaps market which has already forced many lenders to increase their mortgage interest rates over the past few weeks.”
