Home Money What does rising inflation mean to you? Has it ended with an interest rate cut from the Bank of England?

What does rising inflation mean to you? Has it ended with an interest rate cut from the Bank of England?

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Rates conundrum: Bank of England Governor Andrew Bailey must weigh slowing economic growth with persistent inflation

Inflation in the UK rose to 2.6 per cent in November, it was revealed today, as rising cost of living accelerated again.

Persistent inflation is hitting Britons in the pocketbook and any realistic chance of another Bank of England base rate cut this year was crushed this morning as official data added to fears of an inflationary resurgence.

What has happened to inflation?

Annual consumer price index inflation rose from 2.3 percent in October to 2.6 percent in November, according to the Office for National Statistics, while closely watched services inflation continued to be sticky in the 5 percent.

The increase in the CPI, which was in line with market forecasts, caused inflation to reach its highest level in eight months. Its low was a reading of 1.7 percent in September, when it fell below the Bank’s target of 2 percent.

Price increases were widely felt across the British economy in November, with core inflation – which excludes energy, food, alcohol and tobacco – rising from 3.3 to 3.5 per cent.

Rates conundrum: Bank of England Governor Andrew Bailey must weigh slowing economic growth with persistent inflation

What does this mean for interest rates?

Traders have now all but ruled out any chance of a Bank of England rate cut on Thursday, with market interest rate forecasts showing just two cuts of 25 basis points each for next year.

This would take the base rate from its current level of 4.75 percent to 4.25 percent by the end of 2025, marking a stark contrast to forecasts from the U.S. Federal Reserve and the European Central Bank, which Investors believe they will be more aggressive.

Some forecasters have been more optimistic about rate cuts, with economists at Capital Economics previously saying the base rate will fall to 3.5 percent in early 2026. These predictions may be revised in light of higher inflation.

James Smith, developed markets economist, UK, at ING, said: ‘Our base case is for back-to-back rate cuts from February, with the bank rate falling to 3.25 per cent later in the year. anus.

‘However, for the moment, today’s data means the Bank will stay the course at this week’s meeting. It will keep rates unchanged and offer no further clues about what comes next, beyond reaffirming its commitment to gradual cuts.’

The main drivers of the rise in inflation were transport, recreation and culture, clothing and footwear, alcohol and tobacco, the ONS said.

The main drivers of the rise in inflation were transport, recreation and culture, clothing and footwear, alcohol and tobacco, the ONS said.

The CPI data follows stronger-than-expected wage growth data released on Tuesday and weakens the case for more aggressive rate cuts to counter slowing UK economic growth.

Michael Field, European stock market strategist at Morningstar, said: “The explanation for the (CPI) rise in October was due to an increase in the cap on energy prices, but the fact that inflation continued to rise in “November means there’s probably more to do.” the story.’

Jeff Brummette, chief investment officer at Oakglen Wealth, warned that Bank of England Governor Andrew Bailey will also have to closely monitor how the economy responds to the changes announced in the autumn budget, which takes effect from April. .

He added: ‘Businesses may increase prices to cover additional National Insurance contributions, while the general increase in public spending could also affect inflation.

“We expect markets to be happy if inflation stays in the 2 to 3 percent range next year, but if it were to rise a little higher, the central bank could find itself in a rate-hiking position again.”

What is happening with mortgage and savings rates?

By Simon Lambert, This is money

Mortgage rates have risen in recent months as expectations about interest rate cuts have eased.

At one point, the best five-year fixed-rate mortgages had fallen below 4 per cent, but are now around 4.2 per cent.

However, competition between lenders has capped mortgage prices and a mini mortgage price war has emerged before Christmas, triggering a wave of rate cuts by major banks.

Mortgage rates remain considerably higher than they were before rising costs of living caused a rapid rise in the Bank of England’s base rate, with many borrowers seeing payments rise as they exit five-year arrangements below 2 percent.

> Mortgage rate increase calculator: How much would it cost you?

Savings rates have also fallen this year, but the cut in base rate forecasts has slowed the cuts.

The good news for savers is that lower inflation means they are earning real returns once again.

There are currently 1,582 savings accounts exceeding the CPI inflation rate, figures from rates expert Moneyfacts Compare show. In November 2023, there were 892 deals that could exceed inflation of 4.6 percent, while in November 2022, there were no deals that could exceed 11.1 percent.

Currently, the best fixed-rate savings accounts pay up to 4.8 percent over one year and 4.54 percent over two years, while the best easy-access savings accounts pay up to 4.85 percent .

However, the threat of a savings tax on interest means that most savers would be better off turning to one of the best cash ISAs as their first port of call.

The best deals on This is Money’s Cash Isa savings tables pay up to 4.9 per cent with easy access, while the highest fixed rate Isas pay around 4.5 per cent over a year and 4 .4 percent in two years.

> Savings alerts: be the first to know about the best new deals

What will drive future inflation?

While services inflation of 5 per cent disappointed the Bank of England’s expectations of a fall to 4.9 per cent, it was below broader market forecasts of a rise to 5.1 per cent.

However, the rate was largely cushioned by a huge 19.3 per cent drop in the price of airfares during the month, while Brits saw big increases in housing and household services, restaurants and hotels, and recreation and culture.

Wage inflation is believed to be a key factor in this.

Lindsay James, investment strategist at Quilter Investors, said there is “reason to be optimistic” that services inflation “can be brought under control,” pointing to a drop in job openings and the impending rise in insurance payments. of employers as factors that could raise wages. growth under control.

He added: “While slower wage growth may be unpleasant news for workers, given that wages account for around 60 per cent of costs in a typical service sector business, it will help bring overall inflation closer.” more to the Bank’s 2 percent target.

ONS data shows how services inflation is rising more than the rise in the cost of goods

ONS data shows how services inflation is rising more than the rise in the cost of goods

ING expects services inflation to decline to 3% in spring

ING expects services inflation to decline to 3% in spring

ING’s Smith said he expects services inflation to “bounce around 5 percent over the next four months or so” but “get pretty close” to 3 percent by spring.

He explained: ‘A large part of the basket of services is affected by specific annual changes in indexed prices; Let’s think about things like phone and Internet bills.

‘These are often linked to past rates of headline inflation which, through 2024, has been fairly benign.

“Those annual price increases for various services should therefore be less aggressive next April than we saw earlier this year.”

This, he said, would push core inflation “materially below” 3 percent, providing “some ammunition for the Bank of England to act on rate cuts a little quicker than markets are now pricing in.”

The best mortgage rates and how to find them

Mortgage rates have risen substantially in recent years, meaning those who remortgage or buy a home face higher costs.

That makes it even more important to shop for the best possible rate for you and get good mortgage advice.

Quick mortgage search links with This is Money partner L&C

> Mortgage rate calculator

> Find the right mortgage for you

To help our readers find the best mortgage, This is Money has teamed up with L&C, the UK’s leading commission-free broker.

This is the Money and L&C mortgage calculator can allow you to compare offers to see which ones suit your home value and deposit level.

You can compare the duration of fixed rates, from two-year arrangements to five-year arrangements and ten-year arrangements.

If you’re ready to find your next mortgage, why not use This is Money and L&C’s Online Mortgage Finder? It will search thousands of offers from over 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Mortgage service provided by London & Country Mortgages (L&C), which is authorized and regulated by the Financial Conduct Authority (registration number: 143002). The FCA does not regulate most buy-to-let mortgages. Your home or property can be repossessed if you don’t keep up with your mortgage payments.

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