The UK rate of inflation has increased for the first time in months, with the Consumer Prices Index (CPI) rising by four per cent in the 12 months to December 2023.
Up from 3.9 per cent in November, the surprise increase defied expectations from experts who had predicted a fall to 3.8 per cent.
Chancellor of the Exchequer Jeremy Hunt said: “As we have seen in the US, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it.
“We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
Chancellor Jeremy Hunt insisted his ‘plan is working’
PA
The UK rate of inflation is now twice the Bank of England’s target level, which is two per cent.
The surprise increase has sparked fears from some commentators that the Bank of England could decide to hike interest rates yet again.
Tobias Gruber, founder and CEO of My Community Finance, said:”The Bank of England seems to be losing the battle against inflation, and these shocking figures mean Andrew Bailey may need to contemplate yet another base rate hike, spelling further misery for borrowers.
“The strategy of increasing interest rates, aimed at curbing spending, paradoxically translates to added hardship for millions grappling with the prospect of shelling out hundreds of pounds extra each month on their mortgages.
“It’s a perplexing scenario for borrowers who struggle to comprehend why diligent homeowners are forced to shoulder the burden of getting inflation under control, while the banks continue to reap the benefits.
“This raises fundamental questions about the fairness of the current economic approach and whether it genuinely serves the interests of hardworking people.”
Amanda Aumonier, director of mortgage operations at Better.co.uk also warned of a potential base rate hike, suggesting the “shock uptick” in inflation could, in theory, prompt the Bank of England to raise interest rates “in an effort to regain control”.
She said: “This possibility will raise concerns for anxious homeowners facing the unenviable challenge of securing a new mortgage deal this year, as there’s a fear that mortgage rates could increase.
Inflation has increased for the first time in months in a blow to consumers struggling with the cost of living
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“1.5 million homeowners have fixed-rate deals concluding this year. If you’re one of them, reach out to a mortgage broker ASAP to help you navigate the best way forward.
“Being proactive can make managing challenges associated with the shift in your finances more straightforward.”
Despite the rise in the inflation rate, it is still far from its peak of 11.1 per cent in October 2022.
Alice Haine, Personal Finance Analyst at BestInvest, said: “While a slight rise in inflation will come as a worry for households, it is still a very different landscape to the start of 2023 when inflation hit an eye-watering 10.1 per cent – a time when many Britons wondered how they would meet rapidly rising living costs.
“The rapid slowdown in the pace of price rises over the past 12 months means many Britons across the country will feel slightly more comfortable about the future than they did in January 2023.
“Plus, with average wage growth now outstripping inflation, consumers can tentatively look forward to better times ahead.”
