The UK inflation rate held at 3% in the year to February, which is in line with forecasts. It has remained unchanged from the previous month and is, therefore, still at its lowest level since March last year.
The data used for this latest figure was collected before the start of the Middle East conflict. Therefore, the impact of the war hasn’t yet been reflected in the inflation rate. Energy and fuel prices have already increased so it’s expected that inflation will rise in the future.
How was the latest UK inflation rate figure arrived at?
The price of clothing was the biggest upward driver of inflation, which increased this month but dropped a year ago. Footwear prices also rose as did prices across furniture and household goods.
Petrol costs offset these increases, which you may find surprising considering the jump in fuel prices. However, the data for this was collected before the war in the Middle East began. This means that the conflict’s impact on the UK economy hasn’t yet filtered through. The Office for National Statistics (ONS) stated that the average price per litre of petrol was 131.6p in February, which was the lowest it had been since June 2021. The average price per litre of diesel was 141.1p.
Prices for food and non-alcoholic drinks also slowed, compared with a small increase at the same time last year.
How will interest rates be affected?
Whilst inflation has gradually been on track to reach the Bank of England’s 2% target, the conflict in the Middle East is expected to change that. The drop in fuel prices that was recorded for February’s inflation figure occurred before the war broke out. Fuel prices have already risen significantly and are expected to continue rising in the coming months.
The Monetary Policy Committee (MPC) had previously been expected to lower the base rate as inflation was slowing. However, at their latest review on 19th March, they voted unanimously to hold it at 3.75% as a precaution against the potential inflationary impact of the conflict. Now, it’s anticipated that interest rates may go up again, with the next MPC review taking place on 30th April.
Have you locked in a new mortgage rate?
The impact of the conflict may not have affected the UK inflation rate yet but it has already affected mortgage rates. In early March, swap rates – which determine lenders’ costs – increased, leading many mainstream lenders to increase their mortgage rates. Rates rose to above 5% and many smaller lenders had no choice but to withdraw some of their fixed-rate mortgage products.
With a turbulent market and increased inflationary pressure, it’s recommended to lock in a new rate now if your current deal is coming to an end. Lenders usually allow this up to 6 months before a deal ends but they give you the flexibility to change it again if a better rate becomes available before the new deal starts.
That way, having a locked-in rate now protects you against any future increases. It also gives you peace of mind that you can change it should the market turn again before your current deal expires.
Speak with our expert mortgage brokers
Whether you’re ready to buy your first home or want to switch to a new deal, our mortgage brokers are here to offer you impartial, expert advice. With unrestricted access to the market, including exclusive broker-only deals, they can find the best deals to suit your financial needs and mortgage goals. Give us a call today on 01322 907 000 to benefit from a tailored mortgage solution.