It’s never the most joyous of news when it’s announced that inflation is set to continue to rise sharply. But that is what has been predicted by the Bank of England’s chief economist Huw Pill in October, who said we could see rises in inflation of up to 5% next year.
His comments come after the latest figure for inflation was released at 3.1%. This exceeds the current target set by the Government of 2%.
How will this affect consumers?
In short, rising inflation means that goods will become more expensive. With inflation where it is currently, we are already seeing an increase in the price of everyday items compared to this time last year.
Companies like Unilever and Nestlé have confirmed that they have increased prices of their products this year, with Unilever confirming it will have to continue raising prices next year, too. Such increases have been attributed to issues in the supply chain, staff shortages and increases in shipping costs.
What will happen to interest rates?
The Bank of England interest rate has been at a record low of 0.1% since March 2020. Low interest rates affect things like mortgages and loans; the lower the interest rate, the lower your repayments could be. However, savers can be hit hardest with low rates, as they don’t make as much interest from their savings.
Higher rates mean that there is more incentive to save compared to borrowing and spending, and if spending slows down, in theory, so should inflation.
All this being said, the Bank of England’s governor has warned that it will need to act on rising inflation. This means that it’s likely that the interest rate will rise to combat the steep upturn that’s expected in inflation. We could see the interest rate increase to 0.25% in November, rising to as high as 0.75% later next year.
How will I be affected?
Homeowners with a mortgage may want to ensure they’re on a fixed deal to prevent rising monthly mortgage payments. Those on tracker mortgages, which track the Bank of England base rate will likely see rises as the interest rate increases. Remortgaging onto a fixed deal may save money compared to a lender’s variable or tracker products.
Savers can expect to see a small boost in interest if the rate does rise. However, those with loans or debts may need to check what will happen to their payments if this is the case. When there are changes to interest rates of this nature, here at Brunsdon Financial we always believe it’s best to seek sound advice.