The latest UK inflation rate has remained at 3.8%, as confirmed by the Office for National Statistics (ONS). Whilst this had been expected by many economists, it still stands at almost twice the Bank of England’s target rate of 2% for inflation.
Why hasn’t the latest UK inflation rate changed?
The inflation rate has remained unchanged mainly because food and drink prices have continued to rise but they have been offset by the cost of air travel.
Food inflation reached 5.1% in the year to August, up from 4.9% in the year to July. This is the fifth consecutive month the rate has increased. This continues to add a strain on households with the persistent high cost of living. The ONS confirmed there were price increases for cheese, milk, fruit juices, eggs, fish and vegetables.
The costs of petrol and diesel have also risen since the previous month, although the prices remain lower than they were last August. Restaurant and hotel prices increased to 3.8% in the year to August from 3.4% in the year to July. The yearly inflation rate for August for alcohol and tobacco rose to 5.9% from 5.7% in July.
The increases were mainly offset by airfares, which increased at a slower rate than at the same time last year. This was expected after the timing of the summer holidays, which began earlier this year, caused the rate to increase significantly in the year to July. Clothing and shoe prices fell to 0.2% in the year to August from July’s figure of 0.3%. Transport prices also dropped from 3.2% in the year to July to 2.4% in August.
How will this affect interest rates?
With inflation remaining persistently high, it’s expected that interest rates will be held following tomorrow’s review by the Monetary Policy Committee. Currently at 4%, some economists believe it’s now seeming unlikely that the base rate will be cut again this year.
This is discouraging news for mortgage holders. If you have a variable rate mortgage, it means that you won’t see a reduction in your monthly payments. If you have a fixed-rate deal that’s coming to an end, the rate for a new deal may be higher than you were hoping for.
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If the latest inflation news has left you feeling concerned about your mortgage, give our friendly brokers a call on 01322 907 000. They can discuss your options and talk through possible solutions with you.