Inflation has climbed to the highest rate in 40-years as surging energy bills continue to squeeze household finances.
Office for National Statistics (ONS) figures show that inflation hit 9% in April, the highest level seen since 1982.
That’s up from the 7% reported in March and was driven by last month’s rise in the energy price cap. The cap on maximum bills jumped by £693 to £1,971 in April.
The rising cost of petrol and second hand cars had the biggest impact on inflation. Rising food prices also played a role with prices on some essentials climbing rapidly.
It is expected that inflation will hit 10% later in the year.
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Alan Fitzpatrick, VP lending operations at Habito:
“As the Bank of England grapples to curb rising inflation, we are expecting further back-to-back interest rate increases this year. If the Bank does choose to hike rates again at its meetings in June, August or September, those on a standard variable rate mortgage, could see monthly mortgage repayments rocketing, when compared with the period of historic low rates we’ve enjoyed for the last 10+ years.
“The ‘winners’ from rising inflation are borrowers on longer fixed-rate deals. These homeowners know that their monthly repayment amounts will stay the same for years, and won’t be subject to the types of shocks we’ve seen in energy, food, and petrol bills. However, those on shorter fixes, or with deals expiring soon, could face a bit of a rate shock when they come to remortgage.
“For homeowners with deals expiring in the next six months, now is the time to look at whether fixing their mortgage costs is the right course of action. Mortgage rates are rising, but there are lenders out there which allow you to lock in a deal six months early.
“Long term fixed rate mortgages could also be worth considering for homeowners wanting more certainty over their repayments. Not only do long-term fixes offer homeowners protection from rising interest rates, but as inflation rises, the “real” cost of repaying today’s mortgage grows cheaper over time. Essentially, homeowners can repay the loan in ever-cheaper pounds, which can ease the cost of borrowing.
“For some people, the impact of inflation will take a big toll on their monthly outgoings. We’ve already had enquiries from some customers wanting to remortgage to change their term from 20-years remaining to 30-years remaining, to reduce their monthly repayment amount.”
Simon Webb, MD of capital markets & finance at LiveMore:
“The latest rise in inflation to 9% will increase the chance of the Bank of England’s Monetary Policy Committee lifting the base rate in June, potentially by as much as 0.5%. This was the preferred option of three of the nine MPC members at their last meeting in early May. That will be a real blow for mortgage borrowers on variable rates whose monthly payments have potentially already gone up four times in five months.
“Now is the perfect time for borrowers to lock into a long-term fixed rate mortgage and this will be especially advantageous for borrowers aged 50 to 90+. Many of the upper part of that age group are unlikely to want to move home again so knowing exactly what their monthly payments are will give them peace of mind. As they move into their twilight years they won’t have to worry during these uncertain times if the Bank continues to raise the base rate.”
Graham Wells, financial coach at Haddington-based GroWiser Financial Coaching:
“The combination of high inflation and historically low interest rates could be seen as good news for borrowers. The real value of debt is being eroded by inflation, yet interest payments remain relatively low. For savers, though, it’s an entirely different story.
“The current level of inflation is a horror story for savers. People who view bank deposits as ‘safe’ are now suffering from very real inflation risk. The risk of stocks and shares can put people off investing, but savers need to prepare for this for any chance of capital preservation and long term wealth building.
“Cash and equities both carry risks, just different types. Too much focus is being placed on the immediate price rises associated with inflation. It creates anxiety, sure, and that’s because we feel the immediate pain of having less money to spend. But it’s just as important to plan for the longer term effects of inflation and that means making our money work harder. Now is the time to review pensions, investments and savings, accepting that it’s still wise to keep some cash aside for emergencies and short-term spending.”
Adrian Murphy, CEO at Glasgow-based wealth manager, Murphy Wealth:
“Arguing that equities are less risky than savings right now falls into the common trap of analysing two products that are not comparable. Equities are a long-term strategy to increase the overall value of the amount invested. Savings are a short-term pot of cash that can be easily accessed. With two completely different uses, it is near impossible to compare the risks associated with the products, as each risk is specific to the holder.
“Someone who needs to access a pot of capital in one month to buy their dream home will see the risks of equities as significantly higher than a savings account.
“That same person looking to build wealth for their retirement in 20 years’ time will see the inflationary risks of savings as significantly higher than holding equities. Arguing that equities are less risky than savings is the age old practice of trying to compare apples and oranges.”
Joshua Gerstler, chartered financial planner at Borehamwood-based The Orchard Practice:
“For a whole generation, this is the first time that we have seen inflation at these levels. Whilst we continually tell those we look after that inflation is one of the biggest threats to their long term wealth, people are now seeing with their own eyes for the very first time that it is indeed the case.
“Only money needed for upcoming expenditure and emergencies should be held in savings accounts for the long-term. Everything else should be invested, mainly in equities, to benefit from the continued advancement of the great businesses of this world, to be able to share in their profits.”
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown:
“The surge in energy prices is draining us dry, after gas prices almost doubled in a year. In April, the huge hike in the energy price cap pushed inflation to a 40-year high of 9%. Unfortunately, this doesn’t come as a massive surprise to anyone. After-all we have been living through this horrible period, so we know all-too well how expensive life is getting.
“Energy price hikes would be bad enough on their own, but we’re also having to deal with record fuel costs, eye-watering rises in supermarket prices and the soaring cost of home repairs and improvements.
“Figures out yesterday showed that, excluding bonuses, wages fell even further behind inflation, with public sector workers suffering particularly – as prices stretched way ahead of paltry pay rises. And things are set to get even worse, because the OBR is predicting the biggest fall in living standards in a generation.”
