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UK CPI inflation figures reveal first increase in 10 months

Recent Consumer Price Index figures revealed a 0.1% increase to UK inflation rates, but what does this mean in real terms for UK consumers?

A photo of Dom Limberg, the author

By Dom Limberg

Published on: 17 January 2024

6 min read

UK CPI inflation figures reveal first increase in 10 months

Official figures from the UK Consumer Price Index (CPI) show that inflation surprisingly rose to 4% in December (from 3.9% in November) – the first rise in rates in 10 months. This happened despite the belief that rate was going to fall, with the increase being due to various factors including shipping delays and tax increases following the Autumn statement.

There have been a lot of articles written about inflation over the last year, and many economic experts had believed that inflation was now under control with more decreases being likely.

In 2022 and 2023, high levels of inflation in the UK were causing chaos in the mortgage market, because of the significant effect on interest rates. High inflation has also meant many UK families have been struggling financially with basic expenses, with the average weekly food shop suddenly being far more expensive than it ever was.

With inflation rising again, UK consumers could understandably be worried about the potential impact this will have on them and their household. If you are struggling with costs related to high inflation and the current cost of living crisis, you can find more information and money saving tips here.

QUICK SUMMARYUK CPI inflation figures reveal first increase in 10 months

Recent figures have revealed that there has been a slight increase to UK inflation rates, but what does this mean in real terms for UK consumers and are rates likely to continue rising?

  • The inflation rate rise to 4% marked the first increase to UK inflation in 10 months, which has the potential to delay expected interest rate cuts by the Bank of England in 2024.
  • Though a 0.1% rise isn’t a massive jump, it does indicate that the figures may not smoothly drop down to the ideal 2% rate of inflation that the government is aiming for.
  • Inflation rates are still expected to fall overall, but it is possible they may increase slightly again first, as Jeremy Hunt has stated decreasing inflation doesn’t always happen in a ‘straight line’.
  • The current inflation rate of 4% is double the Bank of England’s target of 2%, impacting the cost of living for UK families.
  • Though inflation has risen, mortgages seem mostly unaffected for the moment with many lenders having recently announced new interest rates of less than 4%.

As of the most recent figures, the overall rate of inflation in the UK has risen 0.1% to a rate of 4%. This was the first time in 10 months that this rate rose, which could cause delays to the cuts in interest rates that had been expected from the Bank of England in 2024.

Economists had predicted that there would be a small decrease in December of 0.1%, but this did not happen due to various factors including raising tax on products like tobacco and alcohol.

Note: The UK core inflation rate, which focuses on price increases excluding unpredictable categories like food and energy, remained steady at 5.1%

What is the ideal inflation rate in the UK?

The Bank of England aims to maintain inflation at 2%, but the present rate of 4% is twice that target amount. It is however far lower than the peak rates within the last 18 months, with the rate of 11.1% in October 2022 being over 5 times the recommended figure.

How does inflation affect me and my family?

Inflation is a topic that might feel confusing or difficult to process, but it’s something that will affect all of us every day so it’s good to have a basic understanding of it.

Simply put, inflation is the rate at which prices of goods and services increase over time. The current rate is 4%, which means that prices for things like food and the general cost of living is 4% higher this year compared to this time last year.

It means that your budget may not stretch as far as it used to, and this is putting strain on families across the country. It is at least positive that rates aren’t as high as previous peaks, and ideally they will continue to trend downwards overall.

BREAKING: UK inflation unexpectedly jumps to 4%

As can be seen in the video above from Sky News, UK chancellor Jeremy Hunt has reassured the press following the news of the 0.1% increase stating that inflation doesn’t always fall in a ‘straight line’ and it doesn’t mean that rates will begin climbing again.

If you are struggling to afford basic bills and expenses due to higher prices caused by inflation, there are a few resources available that may be able to help.

Firstly, you should check if you are eligible for any support from people like your energy supplier or mortgage lender as there are schemes available that many people aren’t aware of.

You may even be able to apply for help with improvements to make your home more energy efficient which could help you save significantly, particularly in the winter months. The Gov.uk website contains a full guide which explains how this works and how to check if you are eligible: Gov.uk – Help from your energy supplier: the Energy Company Obligation

You could also be entitled to certain benefits depending on your own situation, which you can check on the gov.uk website here: Gov.uk – Benefits calculators

If you are having trouble with affording food shopping, there may be local food banks which can help. There will normally be information about this on your local council’s website or you can check the Trussell Trust website and use their ‘Find a Foodbank’ service.

Why is inflation rising again?

There have been noticeable delays to delivery and shipping in Europe in the last month, which are causing issues with UK inflation rates. This is because inflation is linked to the supply and demand for products and services which will of course be affected if certain products now aren’t easily available.

There are also various other factors that will have an impact on inflation. According to industry data, around a third of the spending around Christmas was on items that had some kind of discount. On top of this, previously high levels of wage rises have slowed, with the annual rate last month being 6.6% compared to 7.3% in November. Other reasons include:

  • Ofgem energy price cap rises – a 5% increase was recently announced which could cause further increases to inflation
  • Wholesale energy prices are expected to fall by April, which could contribute to a decrease in inflation
  • Motor fuel prices fell in the year to December (10.8% drop) which could also contribute to continuing decreases to inflation

Note: The current data may not fully reflect the consequences of rising shipping costs caused by Red Sea diversions and Houthi fighter vessel attacks, as the most significant increases in shipping prices occurred towards the end of December.

It’s hard to say if the Bank of England (BoE) will definitely increase interest rates based on these latest figures – but it’s certainly possible. At the moment, inflation could continue to rise further as the full impact of higher shipping costs may not have been felt yet.

We are hopeful that as long as inflation remains steady and doesn’t rise sharply, the Bank of England may allow the rate to hold at 5.25% or there would only be a small increase. The Bank of England’s Monetary Policy Committee are next due to meet on 1st February 2024, which is when any changes to the BoE rate will be decided.

Previously, the Bank of England voted for 14 consecutive interest rate rises up until August 2023. At this point they decided to hold the UK’s base interest rate at 5.25% which it has remained at ever since.

When you have a mortgage or are applying for a new one, you will always need to consider the interest rate attached to your mortgage and if this will be affordable for you. You could choose a fixed rate which means that you pay the same interest for a set number of years or a variable rate which can change over time.

There are pros and cons to each type of interest rate and inflation will pay a big part in what rates are available to you. Lenders will usually increase interest rates if inflation is high, to compensate for any losses to the value of the mortgage.

Most lenders will use the rates set by the Bank of England as a base level to work from and increases to inflation could cause the Bank of England rate to rise.

Currently, many UK lenders are offering rates below 4% which has been good news for both first time buyers and home movers. It’s possible that these rates may not be around for long if inflation continues rising, so you might want to act now if there is a particular mortgage that you had your eye on.

If you have any concerns about your mortgage, you should talk to your lender for more information or to an independent mortgage broker for impartial advice.

More finance news

For more news about inflation and UK finance, you can read more in our MPO finance section. We also have the latest top news stories and guides listed below.

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