The data, which refers to the rise in prices of goods and services as measured by the Consumer Price Index (CPI) in October, is above where it had been predicted to fall last month.
However, it will come as no surprise to consumers who will have noticed a steep rise in petrol, second-hand cars and energy bills in the last couple of months.
The impact of high inflation on our day-to-day spending is clear – it means we’ll all be paying more for everything we purchase.
Indeed, Danni Hewson, financial analyst for AJ Bell explained: “Just about everything is getting more expensive, though at least when it comes to the cost of goods and services in bars and restaurants we can point to a specific event as VAT jumped up from 5% to 12.5%.
“The cost of goods leaving the factory gate have surged to a ten-year high and supply bottle necks, labour shortages and rising commodity prices don’t look like fizzling out in a hurry.”
But what does it mean for our mortgages? The answer to this lies in the fact inflation is now more than double the Bank of England’s (BoE) target inflation level of 2%.
The BoE has been getting concerned about rising inflation and had thought very seriously, earlier this month, about increasing interest rates.
The theory behind this – in a nutshell – is if rates go up, people’s mortgage rates will also rise and they will have less to spend in the shops and on services and inflation will fall again before demand can outpace supply.
The interest rate hike did not happen. But, with inflation now reaching a 10-year high, there may now be more pressure on the BoE to raise rates at its next meeting.
Mortgage rate rise
What’s more – and this is the bit which is most relevant for mortgage holders and would-be borrowers – some mortgage lenders have already begun factoring in any potential rate hikes and have increased their own rates. Brokers believe more may follow.
Rob Peters, of Simple Fast Mortgage, said: “The surge in inflation to 4.2% will undoubtedly result in higher mortgage costs for borrowers as lenders are likely to hike up their rates ‘today’ based on expectations that the Bank of England will follow suit ‘tomorrow’.
“Anyone thinking about getting a mortgage should move quickly to speak to an adviser as some mortgage lenders will allow the current low rates to be locked in at an early stage in the mortgage application process.
“Those with a mortgage already, particularly where the current deal ends within the next six months, should review their circumstances to see if a better deal can be had.”
Don’t panic
Before you start worrying too much, the rate rise itself is not a given. In fact, Danni questioned whether it would solve the problems behind the steep rise in inflation.
“The question is what good would it do?,” she asked. “Very little in the immediate aftermath seems to be the answer especially as a rate rise wouldn’t solve the global chip shortage, geo-political tensions or shortages of crucial supplies like gas.”
And, even if a rise does take place, the BoE is likely to put rates up to 0.25%, which is still low.
Scott Taylor-Barr a financial adviser at Carl Summers Financial Services, advised homeowners not to panic. “Though we may be seeing mortgage interest rates rise, we are talking here about moving from record-breakingly low, to just really low,” he said.
“It is still more important to look at the other aspects of any mortgage deal; what are the fees, should you fix, do you have a two, three or four-year deal (or longer)? Don’t become fixated on the interest rate, as you could well end up making an expensive mistake.”
