UK homeowners and first-time buyers warned as inflation rises above Bank of England's 2 percent target

Homeowners and first-time buyers across the UK have been issued a warning as inflation has now risen above the Bank of England's 2 percent target.

The Office for National Statistics (ONS) has said that Consumer Prices Index (CPI) inflation rose from 1.7 percent in September to 2.3 percent in October, which is now its highest level since April.

Inflation was higher than expected for the month, after economists had predicted a rise of 2.2 percent. It is the sharpest month-on-month increase in the rate of inflation for two years, and has been driven by an increase in household energy bills, according to official figures.

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In October, average household energy bills increased by £149 a year after regulator Ofgem raised the energy price cap from £1,568 for a typical dual fuel household in England, Scotland and Wales to £1,717. This represented a rise of 10 percent roughly.

ONS chief economist Grant Fitzner said: “Inflation rose this month as the increase in the energy price cap meant higher costs for gas and electricity compared with a fall at the same time last year.

“These were partially offset by falls in recreation and culture, including live music and theatre ticket price. The cost of raw materials for businesses continued to fall, once again driven by lower crude oil price.”

With UK inflation having now returned back above the 2 percent target set by the government, experts say that policymakers at the central bank are less likely to continue to cut interest rates, after reducing the base rate to 4.75 percent earlier this month.

The significant hike in inflation will deal a devastating blow to homeowners with mortgages and first-time buyers who are looking to get on the property ladder, as interest rates could now rise again in line with the new inflation figure.

Issuing a warning to mortgage holders, Alice Haine at Bestinvest by Evelyn Partners, comments: "An uptick in the headline inflation figure will be worrying for households who may be fearing a return to the dark days of rapid price rises that devastated household budgets in recent years. Higher inflation diminishes spending power and erodes savings, making it harder for people to maintain their living standards.

“Homeowners and first-time buyers are likely to be disheartened by the latest inflation reading, as it reduces the likelihood of a third rate cut this year. The average cost of a new fixed-rate mortgage has been creeping up since the Budget, as lenders price their products to reflect expectations that interest rates may stay higher for longer.

"With the latest inflation reading confirming that inflation has not only risen back above the BoE’s 2 percent target but has come in higher than expected, it means that mortgage borrowers could have more pain to contend with if more lenders adjust their rates upwards."

Emma Jones at Whenthebanksaysno.co.uk warned: "This is not the news anyone with a mortgage wanted to see. There's every prospect lenders will now continue to hike rates and a base rate cut in December is almost certainly off the table. There was such optimism just a month or so ago and now it feels like the walls are closing in."

Alerting homeowners, Peter Stimson, Head of Product at MPowered Mortgages, also added: "Anyone who declared ‘mission accomplished’ in Britain’s battle against inflation last month spoke too soon.

“After spending one solitary month below the Bank of England’s 2% target, consumer inflation has leapt back into warning territory. 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."

Daniel Hobbs at New Leaf Distribution commented: "So much for a pre-Christmas rate cut. This is a real blow to the economy, mortgage holders and bricks and mortar. Inflation is on the way up again, quite aggressively too, and that means rates will stay higher for longer. It feels like the whole economy has deteriorated since the Budget."