The UK inflation rate has remained at 3.8% in the year to September. This is the third month in a row that the rate has remained at this level. Whilst this is almost double the Bank of England’s target rate of 2%, it’s lower than the anticipated 4%.
Why has the UK inflation rate remained the same?
The sticky inflation rate is mainly due to transport costs, which rose from 2.4% in the year to August to 3.8% in the year to September. The main factors behind this increase were the prices of petrol and air fares. Other increases were to housing and housing services, rising to 7.3%, the education sector, increasing to 7.2%, alcohol and tobacco, rising to 5.8%, and the communications industries, increasing to 4.7%.
To offset these increases, food and non-alcoholic drink prices have fallen for the first time since May 2024. These prices are still high at 4.5% but they have increased at the slowest rate in over a year, with a slight drop of 0.2% in a month. Recreational and cultural prices have also decreased. Core inflation has fallen from 3.6% to 3.5% in the year to September.
Why is this latest inflation figure important?
Whilst the inflation figure affects everyone’s cost of living, the September figure is especially important. It’s always used by the government to determine the figures for benefits the following April. This latest figure of 3.8% means that a range of benefits will increase by 3.8% next year.
The main disability benefits will automatically increase. These include disability living allowance, Personal Independence Payment (PIP), carer’s allowance and attendance allowance. Universal Credit should also increase but that’s decided separately.
The state pension won’t automatically be affected by this inflation figure in the same way that benefits will be because the triple lock is in place. This safeguards the state pension value against erosion over time. It ensures that the state pension is increased by either the highest of inflation, the average wage increase or 2.5%.
How will interest rates be affected?
As the inflation rate has remained the same rather than increasing to the expected 4%, it has sparked the possibility that a cut to interest rates may happen by the end of the year. The base rate currently stands at 4% and its next review by the Monetary Policy Committee is to be held on 6th November. A rate cut isn’t expected on that date but the last review of the year is to be held on 18th December and experts are more hopeful of a cut then.
Need mortgage advice? Speak with our expert brokers
Mortgage rates aren’t expected to come down any further this year. Lenders use swap rates to track the expectations for interest rates and have already factored these into their mortgage pricing. As such, if you’re looking for a new mortgage or your current deal is coming to an end, our mortgage brokers can help you decide on the best strategy to take, depending on your situation. Call us on 01322 907 000 for expert, impartial advice on the mortgage solutions available.