A “disappointing” rise in the official inflation rate from 2 percent to 2.2 percent is set to delay further cuts in the Bank of England base rate.
Finance experts say the news could hit home buyers in the pocket by slowing cuts in mortgage rates.
A number of major lenders have cut mortgage rates for new customers and those remortgaging to below 4 percent.
There is no likelihood that these will be reversed, however further reductions may now be delayed.
City experts have predicted that the Bank of England would cut the base rate from 5 percent to 4.75 percent in September, however this could now be pushed back to November.
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, warned the inflation rise “may concern households still trying to balance the books as their finances slowly recover from the fallout from the cost-of-living crisis”.
She said: “An uptick in the headline inflation figure can be a worry for consumers as it diminishes spending power and erodes savings, making it harder for people to maintain their living standards.
“However, with inflation still at a significantly lower level than the 11.1 percent it hit in October 2022, households have no need to panic just yet.”
Looking ahead, she added: “What will be disappointing, however, is the prospect that the next rate reduction may get delayed until later in the year. The stronger inflation reading now sits above the Bank of England’s inflation target of 2 percent causing complications for the central bank as it shifts towards a lower interest rate environment.
“While a rise in inflation in the final few months of 2024 was expected, as easing gas and electricity bills fell by less than they did last year, a sizeable uplift later in the year could derail plans for further interest rate cuts, prolonging the financial struggle for those grappling with heavy mortgage or debt repayments.”
Housing market expert, Nathan Emerson, chief executive of Propertymark, said: “The pathway to a strong and stable economy does come with ups and downs along the way, so today’s fluctuation, while disappointing, is an unfortunate but accepted part of the process.
“Households remain in a stronger position than only 12 months previous, but there is potential the Bank of England may reflect on today’s figures very carefully when the Monetary Policy Committee next meet to decide on interest rates.”
Peter Arnold, EY UK Chief Economist, said he expects inflation will gradually drift upwards throughout the rest of 2024.
“The EY ITEM Club expects the MPC will vote to keep Bank Rate at 5 percent in September, before delivering another 25bps cut in November,” he said.
Mortgage brokers said they do not expect recent falls in home loan rates to be reversed.
Ranald Mitchell, Director at Charwin Mortgages, told Newspage: “The slight rise in headline CPI to 2.2 percent is unlikely to disrupt current downward mortgage pricing trends, as the continued easing of core and services inflation suggests underlying pressures are diminishing.
“While an interest rate cut in September may be less likely, lender competition with mortgage rates should support borrower demand and maintain resilience in the property market.”
Ben Perks, Managing Director at Orchard Financial Advisers commented: “It is unnerving to see inflation on the rise again, but an uptick to 2.2% is better than anticipated. No need for panic stations yet.”
Rohit Kohli, Director at The Mortgage Stop, said: “The road to recovery was always going to have a few bumps along the way and so today’s numbers are not a cause to panic. I don’t see a reversal of the recent rate reductions from lenders as a result of this morning’s numbers.”
