Rising inflation: BoE predicted to hike rates by 1% in November

The return to double digit inflation, which came following an increase of 9.9% in August, will be a further blow to households already bearing the strain of mortgage rate hikes and energy price increases.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “Inflation is back in double figures, rising at almost twice the rate of wages, and stretching us all to breaking point.

“People on the lowest incomes wait in limbo to see whether their benefits will get the boost they need to stop their finances plummeting over a cliff edge.

“Meanwhile, those on average incomes are facing an increasingly impossible challenge every month to make ends meet, and anyone with savings is watching inflation eat their money alive. Fortunately, for savers at least, there’s more positive news.”

What does the inflation rise mean for mortgage borrowers?

The increase in inflation, as measured by the Consumer Prices Index (CPI), comes after a month of turmoil for mortgage borrowers.

With the government’s mini-budget prompting lenders to hike their rates, it also raised the chances of the Bank of England (BoE) increasing interest rates going forward. Some experts thought it might rise to 6% next year.

The BoE’s target for inflation is 2% and it has been gradually increasing the base rate in an attempt to bring the figure back down to this benchmark.

Dominik Lipnicki, director at Your Mortgage Decisions Ltd, said: “The higher-than-expected inflation figures spell more doom and gloom for borrowers, as the Bank of England is under even more pressure to increase their base rate when its Monetary Policy Committee meets on 3 November.

“That said, there are no winners here as even savers are on a hiding to nothing given the level of inflation.”

Meanwhile, Alice Haine, personal finance analyst at Bestinvest, said the decision by the new Chancellor Jeremy Hunt to rip up the mini-Budget may reduce the volatility seen in the financial markets over the past few weeks, but it was not going to ease the squeeze on household budget.

She said: “While the government’s decision to abandon its controversial fiscal plan means the Bank of England is now under less pressure to tackle inflation aggressively, it is still expected to push ahead with a base rate rise of at least 1% when the Monetary Policy Committee next meets on 3 November as it strives to bring double-digit price rises closer to its target of 2%.

“This will offer little relief for homeowners still grappling with a very challenging mortgage market.

“Hunt’s decision to rip up the mini-Budget may have eased the mortgage panic to some extent – a worrying feature of the past few weeks as lenders pulled more than 1,700 products and backtracked on offers in the face of soaring borrowing costs – but it has not quelled it altogether.”