UK inflation expected to rise for second month in blow to Rishi Sunak – latest news

With some mortgage rates rising ahead of the inflation figures on Wednesday, the market is volatile and homeowners on variable rates, or those coming off fixed rates, will be wondering if they should go for a new mortgage product with a rate, or stick at their lender’s variable rate in the hope that rates will go down later in the year.

Ken James, director at Contractor Mortgage Services, told The Independent: “It varies from person to person … are they on a variable rate because they are looking to sell, are they waiting for prices to fall and don’t want to lock into anything now because they feel the prices are high and they want to see if they can get a cheaper deal?

“The downside to that is whilst they are sitting on the fence, it’s costing them as the variable rates are extremely high.

“So the conversation we are having at the moment is is there a halfway house where they can mitigate the increase of the variable rate, but not getting stuck into a fix?

“The halfway house of course now is tracker rates, so a lot more people now are contemplating if tracker rates might be the right way to go. It’s not as cheap as a fixed but it’s not tied to a variable. Maybe go on a tracker rate and ride the storm and see where it takes us.”

My colleague Alex Ross has more in this report:

On Tuesday, figures from the US showed that inflation slowed to 3.1 per cent from 3.4 per cent earlier, but the slowdown was less than the drop to 2.9 per cent that had been expected.

Axel Rudolph, senior market analyst at IG, said: “A higher-than-expected US CPI print provoked a sell-off in global equities as rate cut expectations are pushed back.”

London’s markets slid in a gloomy afternoon session amid concerns over persistent inflation, reports Henry Saker-Clark.

The FTSE 100 had a cautious morning of trading but quickly dropped to its lowest point this month after hotter-than-expected US Consumer Price Index (CPI) inflation figures.

The data suggested hopes of interest rate reductions soon could be premature and particularly dented housebuilders amid concerns about the mortgage market.

London’s top index moved 0.81 per cent, or 61.41 points, lower to finish at 7,512.28, with Taylor Wimpey, Barratt Developments and Persimmon all notable fallers.

Wage growth has slowed to its lowest level for more than a year but is still outpacing inflation, according to official figures.

The Office for National Statistics (ONS) said average regular pay growth, excluding bonuses, fell to 6.2% in the quarter to December, down from an upwardly revised 6.7 per cent in the three months to November.

This was the slowest growth since the three months to October 2022.

But when taking Consumer Prices Index (CPI) inflation into account, real regular wages rose by 1.9 per cent – a high since summer 2019, excluding the pandemic-skewed years.

This is thanks to inflation having fallen back sharply after hitting an eye-watering 41-year high of 11.1 per cent seen in October 2022.

But the fall in wage growth was less than expected by most experts and in financial markets, with investors reining in their bets on interest rate cuts this year after the data.

The higher-than-expected wage rises in Tuesday’s Office for National Statistics figures will also spark worries of delayed cuts to the Bank of England’s base interest rate – given that wage rises can push up inflation.

“Today’s wage rises contribute to tomorrow’s spending power, impacting demand and influencing inflation, so the Bank will be keenly monitoring average earnings growth in particular,” said Rob Morgan, chief investment analyst at Charles Stanley.

“Resilient wages have been a driver of sticky consumer price inflation, and they are not falling back into line as fast as the BoE (Bank of England) would like as it looks to return inflation to the 2 per cent target.

“What’s more, a further inflationary impulse could lie in wait in the form of an increase to the national minimum wage of almost 10 per cent from April, which stands to simultaneously increase costs for employers and bolster household spending power, potentially exerting further upward pressure on prices.”

Economists will be tracking the data to try to figure out what influence it might have on the Bank of England.

The Bank’s Monetary Policy Committee (MPC) is tasked with keeping inflation as close to 2 per cent as possible.

One of the main ways it has to do this is by changing interest rates. By increasing rates it restricts the amount of money that mortgage holders have to spend, therefore reducing demand for goods and services. That can help take pressure off prices.

So if inflation is higher than the 4.1 per cent the MPC expected in its last forecast, that could make rate setters more likely to delay cuts to the base rate.

Following a period of decline in borrowing costs, several major mortgage lenders have announced increases in rates in recent days, my colleague Alex Ross reports.

Mortgage rates are closely tied to swap rates, which is effectively the rate the lenders pay a financial institution for funding, and that is affected by the Bank of England’s base interest rate and inflation.

Tomorrow, experts believe inflation will go up marginally from the annual 4 per cent recorded last month.

Ken James, director at Contractor Mortgage Services, told The Independent: “Lenders at the moment are pricing in potential inflation rises.

“I think what they are doing is safeguarding. They are saying ‘we think that everything is going to rise with all these figures coming in and therefore let’s partly protect ourselves against that future rise and get it in early’.

“I think with tomorrow, because I’m pretty confident rates are going to rise with inflation, I think lenders have just done it early, I think they are just protecting themselves.”

It’s been a turbulent few days for prospective and current homeowners looking for mortgages, with several major lenders announcing increases in rates after a period of decline in borrowing costs.

Nationwide, the country’s biggest building society, revealed its mortgage rates would rise by up to 0.25 percentage points on Tuesday. It comes after lenders Halifax and TSB said they were also raising rates on some of their products.

But, strangely, other lenders have gone in the other direction. Santander has announced mortgage rate cuts of 0.16 percentage points.

The mixed picture for mortgage rates comes after the Bank of England held its base rate at 5.25 per cent earlier this month. However, it is Wednesday’s release of inflation figures which appear to have resulted in what some brokers are calling a “yo-yo” market.

My colleague Alex Ross reports:

Despite an expected blip in Wedesday’s figures, inflation could fall as low as 3.4 per cent in February, an economist has said.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics who believes that inflation hit 4.1 per cet in January, said that regardless of Wednesday’s data, inflation is likely to fall considerably, to 3.4 per cent, this month.