A rise in inflation to 3.5% in the year to September has been confirmed by the Office for National Statistics. This is an unexpected jump from 3.1% in the year to August and the third consecutive increase. This latest inflation rate figure is the one that will be used to determine increases in benefits in April.
Higher than predicted, the rise in inflation is not the only concern a week ahead of the Autumn Budget. The government’s borrowing figures have also been released and these are at the highest level for a year.
What has caused the rise in inflation?
The main contributor to the rise in inflation is the increase in motor fuel costs. The average price of petrol rose by 8.2p per litre to 169.5p per litre between August and September. These are the highest petrol prices since August 2022 and in stark contrast to a fall of 0.2p per litre at the same time last year. Diesel prices also soared, rising by 10.7p per litre to 192.5p per litre in September. These are the highest diesel prices since July 2022. In comparison, diesel prices fell by 0.4p per litre last September.
Airfares and sea fares have also risen, as have the costs of tickets for live events and computer games.
Counteracting these increases slightly, the prices of hotels have risen more slowly than they did at the same time a year ago, as have the costs of going to restaurants. Growth in food prices has remained steady and the cost of clothing has fallen slightly.
What effects will this rise in inflation have?
Inflation is now at its highest level in almost a year, getting further away from the Bank of England’s (BoE) 2% target. The BoE has exercised caution with interest rates until now, with the base rate being held at 3.75% for six consecutive times.
Now, however, with concerns that inflation will rise to over 4% next year, the BoE is expected to raise interest rates following the next review on 5th November.
Mortgage rates
Lenders set their pricing for fixed-rate products based on swap rates. Swap rates are based on market expectations of future interest rates. As interest rates are expected to increase in November, this will put upward pressure on swap rates.
If you have a fixed-rate mortgage deal that’s coming to an end within the next 6 months, don’t wait until the outcome of the base rate review to start checking your options. Many lenders allow you to lock in a new rate early.
With access to the entire market, our mortgage brokers can shop around for you to compare the deals available. They can help you lock in a new rate sooner rather than later. If a cheaper deal than the one you’ve locked in becomes available before your fixed term ends, you can switch to that. However, if rates continue to rise, you’ll have protected yourself against this by securing a better rate beforehand.
Increases in benefits
September’s inflation rate figure is used to set benefit increases in April. Various types of benefits will be affected and are now expected to increase by 3.5%. These benefits include personal independence payments, disability living allowance, carer’s allowance, incapacity benefit, severe disablement allowance, attendance allowance, guardian’s allowance and additional state pension allowance.
State pension increase
The latest inflation rate figure was the last figure needed, along with wages and 2.5%, for the triple lock data that affects how much the state pension will be increased in April. The highest of these was the increase in average wages, with a rise of 3.9%. Therefore, this is the figure expected to be used for the increase in the state pension in April.
Act now to protect against future mortgage rate increases
Our mortgage brokers are here to ensure that you find the most suitable deal for your needs. If you’re looking to buy or already have a mortgage offer in place, they can check how a rate increase may affect the amount you can borrow. If you have a fixed deal that’s coming to an end, they can help you lock in a new rate now. This will protect you against future increases, with the ability to review that deal before your fixed term ends.
Give us a call on 01322 907 000 for expert help navigating a volatile market.