Inflation surges to 2.1%

The rate of inflation has surged in the UK, surpassing the Bank of England’s target. By surpassing predictions, the Bank of England’s Monetary Policy Committee (MPC) may need to adjust existing strategies. Uncover the details about the surge in inflation in this short blog.

UK Inflation Rises to 2.1%

According to statistics published by the Office for National Statistics (ONS), Consumer Price Index (CPI) inflation has increased to 2.1% in the 12 months up to May 2021. Similarly, the Consumer Price Index Including Owner Occupiers’ Housing Cost (CPIH), which includes the costs of living in a home and council tax, also rose to 2.1% through monthly growth of 0.5%.

This means inflation has surpassed the Bank of England’s target of increasing inflation up to 2% as a way to stimulate the economy in response to pandemic restrictions. Breaching the Bank of England’s target has stirred speculation that the Monetary Policy Committee will consider adjusting their existing policy.

Why Has Inflation Risen Sharply?

Rising inflation is a signal of the opening economy. The end of the lockdown roadmap is in sight and the hustle and bustle of pre-COVID life has been more noticeable. Three areas have been significant in contributing to rising inflation, namely food and drink, fuel and clothing. These are three areas held back by lockdown restrictions but are now what consumers want to spend their money on.

It is evident that an impressive economic recovery looms in line with the end of social restrictions and a step closer to normality.

Unfortunately, experts have warned that the current situation represents a type of “bad inflation” which will hit the pockets of low-income households the most. Inflation can be beneficial to the economy if it rises gradually, but if the rate of inflation surges beyond estimates, it can have a counterproductive effect on the economy.

Will the BoE take action?

The Bank of England will be cautious surrounding the surge of inflation. There are no indications that they will take action at this moment in time, but there is no doubt they will continue to monitor the data. Investors will be keeping their ears open as whispers come out of the BoE regarding changes in policy or strategy.

If things run too hot and they do decide to act, they may well increase the base rate, which will have a knock-on effect on some homeowners and current mortgage seeker plans.

If you have a mortgage tied to the base rate and are worried, or you’re currently seeking a mortgage and are unsure of what to do with this new information, it’s worth speaking to a mortgage advisor.

Our experienced team of mortgage advisors can break down and explain the current situation and how it may affect your mortgage plans. For more assistance, don’t hesitate to reach out.

July 2021