Inflation increases to 2.3% – consumer credit industry reaction

Latest figures from the Office for National Statistics (ONS) have shown inflation surged to 2.3% in October, up from the three year low of1.7% in September.

The increase was driven largely by higher energy costs and increased housing costs. For a typical household, annual gas and electricity bills went up by about £149 last month and rental prices and owner-occupied housing costs both increased by 7.4 per cent.

Commenting on the figures, Paul Noble, CEO of Chetwood Bank, said “This latest inflation data is untimely, especially as we head into the festive season, but it’s not entirely unexpected with higher energy costs and price rises in the services sector. The key question is whether this is just a temporary blip following recent positive inflation news or the start of a new upward trend.

“However, it’s worth bearing in mind that inflation is still markedly lower than it was at the same point 12 months ago and the bank base rate is still above inflation. What’s more, there are strong opportunities in the savings market for those looking to make their money work harder over the festive period and into 2025.

“Nevertheless, today’s figures are also a timely reminder to the banking sector that banks must do everything they can to support consumers and help ease their worries over festive spending as we move towards one of the most expensive and financially testing times of the year.

Steve Vaid, chief executive of the Money Advice Trust, the charity that runs National Debtline, said “With inflation on the up again, the pain is far from over for struggling households. Coupled with higher energy costs, this is set to be a hard winter for millions of households without additional support. 

“As costs increase, debts can pile up, and many people already dealing with unmanageable debts are only likely to see their situation worsen. We urgently need to see action to help households dealing with unaffordable arrears, including a Help to Repay scheme for energy debts.”

Alastair Douglas, CEO at TotallyMoney said “Following today’s news, the expectation is that inflation could continue to rise into the New Year, which will add future pressure to household finances. And this is despite the cost of living slowing from its headline-grabbing peak of 11.1%, two years ago.

“While it’s hardly been a nightmare before Christmas, it’s not been a dream start for the new government. Since the Autumn Budget, we’ve heard that unemployment, mortgage rates, and repossessions are creeping up. We’re now waiting to be told that energy bills will increase again in January, while retailers are warning that tax hikes will further drive inflation and job losses.

“Following five turbulent years, people need stability and hope, but they say bad luck comes in threes. Could the news of tariffs on UK exports to the US be just that, following the global pandemic and cost of living crisis? Whatever the case, the Prime Minister and his cabinet need to show that what they’re doing is having a positive impact — and that there’s light at the end of this long, dark tunnel.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “This month’s unwelcome return above the inflation target is unlikely to be a one-off: inflationary pressures look set to keep prices rising more quickly. The good news is that public sector pay rises and the rise in the minimum wage should help ease the immediate pain of higher prices for some people. The bad news is that this could end up feeding into higher prices further down the line, spurring another round of inflation. Retailers are also warning that higher National Insurance could power price rises, and with inflationary pressure building, rate cuts might be off the agenda for a while yet.

“The fact that core inflation rose again, from 3.2% to 3.3%, indicates that rising energy prices aren’t the only issue. Even when they’re stripped out, prices are on the up. Meanwhile, higher services inflation could be the canary in the coal mine of the impact that higher wages could end up having on inflation more broadly.

“The energy price hike at the start of October bears much of the responsibility for this rise in inflation. It’s not a surprise. The energy price cap soared 9.5% at the start of October, to £1,717 for an average user. That’s up £149. Things have been far worse in the very recent past: gas prices are still 36% below their peak and electricity is down 22%. However, prices are still horrible compared to their levels before the invasion of Ukraine. Gas prices are up 88% from March 2021 and electricity is up 56%.

“Air fares were flying high again. Monthly prices bucked the usual trend of falling in October and we saw the fastest price growth than for any October since these prices were first collected in 2021. Flights to Europe pushed costs up, as travellers chased the ebbing sun as we entered the darker months of the year. Annual prices were up an impressive 6.6%.

“Petrol prices helped keep the overall figure for transport inflation down, with some pretty hefty annual price drops. During the month, the average price of petrol fell by 2.8 pence per litre and the average diesel price fell by 2.7 pence per litre. It took the annual price cut for petrol to 13.6% and diesel to 14.2%.

“Food and drink prices rose again – for only the second time in 18 months. It wasn’t the kind of stratospheric rise we’ve faced previously, but it’s a step in the wrong direction. It’s partly the result of poor harvests in key areas, driving up the cost of raw materials. Olive oil, for example, is still up 26.9% in a year and chocolate 9.8% Unfortunately, this won’t be the last we see of food inflation either. The supermarkets are warning that a large workforce on the minimum wage means April’s higher pay and hike in employers’ NI is going to squeeze their tight margins and push up prices on the shelves.”

Rachael Hunnisett, Director, at April Mortgages said “Inflation soaring back above the Bank of England’s 2% target is a fresh blow for borrowers, effectively ruling out any chance of a base rate cut in December.

“The Bank has previously indicated that lower inflation would help to drive further rate cuts, but this spike changes the economic outlook.

“Mortgage rates have been creeping up since the Budget and may be further impacted as a result of today’s announcement, which is higher than most market expectations.

“These recent rate changes are a sign of how quickly the mortgage market can reverse course. Borrowers should avoid making decisions based on speculation as there is never any guarantee which way rates will go. The risk in holding out for a better priced deal is that you could end up being worse off.”

“Simon Webb, Managing Director of capital markets and finance at LiveMore, said “Although CPI has risen to 2.3% in October, it’s worth noting that this remains significantly lower than the 4.6% we saw for the same period last year. Combined with the Bank of England’s recent decision to reduce the base rate to 4.75% and the Budget’s planned 4.1% state pension increase from April 2025, there’s reason for cautious optimism. These measures provide encouraging news for over-50s borrowers, offering the potential to ease affordability pressures and enhance financial stability in future.

“LiveMore is here to support intermediaries in navigating these changes. Our Mortgage Matcher® tool ensures brokers can quickly find tailored solutions that meet their clients’ unique needs, helping them make the most of the opportunities presented by this evolving market.”