"With inflation rising, and the Bank of England signalling its restraint in cutting the interest rate, it is possible that mortgage rates could stay higher for longer."
- Ben Thompson, deputy CEO at Mortgage Advice Bureau
UK inflation has risen from 1.7% in September to 2.3% in October, primarily driven by higher household energy bills.
September marked the first time inflation came in below the Bank of England's 2% target since April 2021. After hitting the Bank of England's 2.0% target in May and June, inflation rose to 2.2% in July and remained static in August.
Core inflation, which excludes energy, food, alcohol and tobacco, was 3.3% in October (up from 3.2% in September) and services inflation rose from 4.9% to 5%.
Following today's higher-than-expected inflation figure, industry experts now expect the Bank of England to hold interest rates at its next meeting in December, with some warning that mortgage rates could remain higher for longer.
"Pace of cuts to be slower and lower"
Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: “Inflation rising isn’t the best start to the festive season for those looking to remortgage or get onto the property ladder. With inflation rising, and the Bank of England signalling its restraint in cutting the interest rate, it is possible that mortgage rates could stay higher for longer."
Derrick Dunne, CEO of YOU Asset Management, commented: "Today's inflation figures are a blow to stretched households and borrowers. While last month's energy price cap rise was expected to push inflation higher than the Bank of England's 2% target, Octobers 2.3% reading was higher than expected.
"With last month's Budget measures also expected to stoke inflation, this is bad news for those banking on further rate cuts. While we believe the Bank will continue to cut the cost of borrowing, the higher-than-expected leap in inflation might slow the pace of those cuts.
"As a result, it's unlikely we'll see the central bank's Monetary Policy Committee pull the trigger on further cuts when it meets again next month."
Peter Stimson, head of product at MPowered Mortgages, said: "The Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.
“While this was to a large extent expected, it doesn’t offer any relief to mortgage lenders and is unlikely to allow them to reduce the interest rates they offer to new customers in the run up to Christmas.
“Looking ahead to 2025, the pace of Base Rate cuts is now likely to be ‘slower and lower’ than it was just a few than few weeks ago, and this is being reflected in a rising swaps market which has already forced many lenders to increase their mortgage interest rates over the past few weeks."
George Lagarias, chief economist at Forvis Mazars, added: "“More bills, less fun” was literally the message from the October inflation print. Prices rose across most categories, save recreation and culture. While the final figure, 2.3%, was very close to expectations, it still marks the official end of inflation coming down on previous dynamics. New initiatives will have to be undertaken if headline inflation is to stabilise around or below 2%, at a time when the Bank of England is more concerned about growth and has entered a rate cut trajectory. We think it is very unlikely that the BoE will cut rates in December, especially after this release, and we wouldn’t be surprised to see rate expectations for the end of 2025 tilting on the upside again."
"There could be one final base rate cut for the year"
However, others still predicted that we could see a December rate cut.
Isaac Stell, investment manager at Wealth Club, said: “Headline inflation reaccelerated in October to the highest rate since April 2024. The reacceleration can largely be attributed to increases in energy prices following the 10% rise in the energy price cap which came into force in October. This rise will likely see an additional £149 added to the average annual household bill according to Ofgem.
"The surprising strength of the latest inflation figures gives the Bank of England a conundrum. With economic growth in the UK stalling, rate cuts would seem like the appropriate medicine, however, cutting rates into inflationary strength wouldn't usually be what the economic doctors order.
"With inflation close to target and one off's causing the latest spike up, the BoE should feel confident about reducing rates by 0.25% in December, helping to ease the burden on consumers facing a rise in their heating bills as the winter weather begins to set in.”
Paresh Raja, CEO of Market Financial Solutions, agreed: “After years of sky-high inflation, any uptick in the CPI figure is understandably met with a healthy dose of trepidation. But the economy has turned a corner, and inflation will now regularly rise and fall - so long as it hovers close to the 2% target, smaller shifts are perfectly fine.
“Much of the noise surrounding the monthly inflation data comes down to the impact on interest rates and the cost of borrowing. The Bank of England has signalled its intent to steadily cut rates, and even the fallout from the recent Budget did not derail those plans. There could be one final base rate cut for the year when the Bank next meets in December, and today’s modest CPI uptick ought not to dramatically alter the decision-making progress. Indeed, the expectation remains that the base rate will continue to fall over the coming year."
