According to industry experts, this increase is going to lead to hard times for first-time buyers and buy-to-let landlords; greater threats to already over-stretched household budgets; and a spike in interest rates at the start of next month.
Although it was expected, this morning’s announcement of another rise in inflation sent shockwaves through the financial markets at a time when businesses and households are struggling to cope with the spiralling cost of living.
The Ukraine effect
Richard Pike, chief sales and marketing officer at Phoebus Software, said: “The rise in inflation announced this morning, albeit small, reflects the continuing rise in energy prices and basics in the supermarket.
“Given that the war in Ukraine continues to rumble on, we are, to an extent, being held to ransom and rising prices are as such inevitable.”
Simon Webb, managing director of capital markets and finance at LiveMore, also highlighted the effects of the conflict in Ukraine but noted that the government’s new plan to only cap energy bills for six months, instead of two years, would result in even greater inflation growth.
He said: “One of the main reasons for high inflation is the surge in energy prices since the Russian invasion of Ukraine in February this year. Government efforts to help curb energy bills with an energy price cap of £2,500 for the next two years no longer stands as the new Chancellor Jeremy Hunt is only guaranteeing the cap until next April.
“If government support for energy bills disappears, it is likely to result in higher inflation as well as negatively impacting on many people’s finances and living standards through 2023.”
More rate rises on the way
Alex Hasty, director at Comparethemarket, warned that today’s figures could only cause more anxiety for UK consumers.
“Many families are particularly concerned about the cost of heating and higher mortgage repayments this winter,” he said. “Our research shows households think they will need an extra £224 per month on average to cover their upcoming bills.
“However, six in ten households (63 per cent) who are not confident they will be able to pay their bills in the coming weeks have not yet taken steps to strengthen their finance.”
Mortgage rates are likely to be particularly impacted as the next meeting of the Bank of England’s Monetary Policy Committee on 3 November “will no doubt end in another increase in interest rates”, according to Pike.
He continued: “Mortgage rates are at the highest many have ever seen, which has to affect the first-time buyer market more than any other.”
Alice Haine, personal finance analyst at Bestinvest noted that while Hunt’s decision to “rip up the mini Budget may have eased the mortgage panic to some extent, it has not quelled it altogether”.
She continued: “So far, mortgage costs have continued to rise despite’s Hunt intervention, with the average two-year fixed-rate jumping to 6.53 per cent on Tuesday, above the 14-year high hit last week.
“While some of the increase can be accounted for by a surge in demand for mortgages as buyers race to lock in a deal before the situation worsens, homeowners and buy-to-let landlords – particularly those with a fixed-rate expiring within the next year – face a series of budget decisions as ‘eye-wateringly’ difficult as Jeremy Hunt as he strives to balance the books.”
Star Wreck
Meanwhile, other commentators derided the government’s attempts to bring inflation under control. Riz Malik, director of R3 Mortgages, was quoted as saying: “We are so far away from the government’s two percent inflation target, we need the Hubble Space Telescope to see it.”
Imran Hussain, director at Nottingham-based Harmony Financial Services, also went for an astronomical metaphor to describe the fiscal crisis facing the Prime Minister.
He said: “The distance between the PM’s policies and what this country needs is roughly the same as that between earth and Pluto, namely 3.1bn miles.”
