UK inflation jumps to 2.9%: Warning for shoppers, savers and mortgage holders

The warning came after official figures revealed that the headline rate of UK inflation had jumped to its highest rate since March after energy prices were pushed up by the conflict in the Middle East.

The Office for National Statistics (ONS) said the annual measure of consumer prices index (CPI) inflation rose to 2.9 per cent in July, up from a 15-month low of 2.6 per cent in June.

The rebound follows a 13 per cent hike in Ofgem’s energy price cap, which increased the average gas and electricity bill by £221 to £1,862 a year.

Kevin Brown, savings expert at Glasgow-based financial mutual Scottish Friendly, said the recent increase in the energy price cap meant more of the impact of the Iran conflict was now landing directly on household bills, with a further hike expected in October.

He added: “Expensive fuel and fertiliser are adding pressure to food production and supply chains, while an exceptionally hot summer raises another threat to harvests. As a result, families may continue to feel the inflationary fallout from this at the till as well as through their utility bills.

“The Bank of England is expected to hold rates in September, although it will have August’s inflation reading to consider before then. But with the majority of forecasts pointing to inflation remaining above its 2 per cent target into next year, policymakers face the perpetual balancing act of getting ahead of rising prices without choking off economic momentum.”

Alice Haine, head of personal finance at investment platform Hargreaves Lansdown, said that for mortgage holders, the concern would be that stickier inflation limits the scope for interest rate cuts.

“Two- and five-year swap rates have moved higher, which can feed into mortgage pricing, although competition among lenders has led to some rate cuts this week,” she noted. “Those coming off shorter fixed-rate deals taken out when borrowing costs were higher may still find better options. But homeowners rolling off ultra-low five-year fixes could face a significant jump in repayments, making early planning essential.”

She added: “Inflation is never good news for savers. Even if it slows the fall in cash rates, rising prices still erode the real value of interest earned and reduce spending power over time.”

The ONS said the steep rise in the energy cap, which follows a big jump in wholesale gas prices, was only partly offset by last month’s lower crude oil costs, which had fallen sharply month-on-month in July amid hopes of a resolution to the Middle East conflict.

The latest data also showed the retail prices index (RPI) rate of inflation had risen to 3.2 per cent last month from 3 per cent in June.

Mike Hardie, deputy director for prices at the ONS, said: “Inflation rose in July, driven by a sharp increase in gas prices following this month’s change to the energy price cap. This was the largest rise in gas prices for almost four years.

“Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting.”