The UK’s Consumer Prices Index (CPI) experienced a marginal increase over the 12 months to December 2023, rising to 4.0% from 3.9% in November. This marks the first uptick in the inflation rate since February of the same year.
December’s monthly CPI growth remained consistent with the previous year’s rate at 0.4%. Notably, the main upward pressure on both the CPI and the CPI including owner occupiers’ housing costs (CPIH) came from alcohol and tobacco. Conversely, the most significant downward influence was attributed to the food and non-alcoholic beverage sector.
The core inflation measure, which strips out volatile items such as energy, food, alcohol, and tobacco, remained unchanged at 5.2% over the 12 months to December 2023 for CPIH, and at 5.1% for CPI. While goods inflation decelerated slightly, services inflation nudged up, indicating persistent price pressures in the service sector.
Ben Thompson, Deputy CEO of Mortgage Advice Bureau, commented on the implications of these figures: “A slight tick upwards in inflation won’t be a massive shock to the system, as inflation was always unlikely to fall in a straight line in 2024.
“However, the concern now is if inflation doesn’t start to come down again soon, we might have to wait a little longer for the first base rate cut from the Bank of England.”
Thompson also addressed the recent fluctuations in swap rates, noting their impact on lender rates and the indirect benefits for those seeking mortgages or remortgaging. He expressed hope that the modest inflation increase reported would not signify the beginning of a rising trend that could affect market expectations and the cost of borrowing.
Reaction
Matthew Jackson, Director at Mint FS:
“CPI rising slightly in December could slam the brakes on the lender rate war that has been raging in January to date. It may only last for a month or so if the next print sees the downward trend in inflation continue. This pretty much guarantees that we will see a hold in the base rate at the next Monetary Policy Committee meeting. But given the positive activity from buyers in the new year, this will have little to no effect on the growing demand for property among borrowers. It’s a minor bump and not a black swan.”
Ranald Mitchell, Director at Charwin Private Clients:Â
“People who were banking on a rate cut in Q1 will be quickly revising their forecasts. This is not a huge curveball but it will echo around the corridors of Threadneedle Street and likely see the Bank of England hold rates steady for the time being. Momentum in the mortgage rate war may now ease off slightly.”
Ben Perks, Managing Director at Orchard Financial Advisers:Â
“Today’s CPI announcement has gone much like my New Year’s Resolutions. In short, not to plan. Whilst not completely unexpected, a slight increase to 4% is not the news borrowers were hoping for. This shouldn’t, however, trigger an increase in the Base Rate from the Bank of England. Stability is key and I hope they will hold. This morning’s news is likely to affect Swap rates, though, which could bring an abrupt end to the lender price war we’ve enjoyed so far this year.”
Justin Moy, Managing Director at EHF Mortgages:Â
“Whilst it is a small change, we have changed direction, which will be a concern for the Bank of England when setting Base Rate over the coming months. It will certainly put a handbrake on the recent rate cuts this year. Again, we should remember that rates are sensitive to economic figures, and can easily increase without much notice, so for those waiting for rates to fall further, don’t dwell. Speak to your broker and reserve a deal as soon as possible.”
Emma Jones, Managing Director at Whenthebanksaysno.co.uk:Â
“Today’s CPI data suggests rates will almost certainly be held steady in the upcoming Bank of England policy meeting. The current tight rate pricing margins likely indicate a pause in rate fluctuations this January as any movement will likely concern lenders’ product pricing teams. The property market seems to be moving towards stabilisation for 2024. Any borrowers remortgaging in the next 6 months must be urged by their advisers to make decisions in real time and not wait for what may or may not be.”
Stephen Perkins, Managing Director at Yellow Brick Mortgages:Â
“The latest inflation print is a sober reminder that the additional Christmas spending can see inflation rise despite fuel prices reducing. Whilst the increase is only marginal it could impact the next Bank of England decision in February. Lenders are not likely to increase rates but we may see a cooling in the recent aggressive reductions.”
Hannah Bashford, Director at Model Financial Solutions:Â
“The small rise in CPI is not that surprising given that we were looking at December and it is the month of indulgence. I would hope that the level of increase won’t mean there is any increase in the base rate at the next MPC meeting but we could see a cooling of the rate war that has been raging for the first two weeks or so of January.”
Riz Malik, Founder & Director at R3 Mortgages:Â
“This is a bump in the road and not ideal ahead of the first Monetary Policy Committee meeting of 2024. Although this is expected to be a bump in the road towards the 2% target, it further highlights that continual mortgage rate cuts are not guaranteed.”
Peter Stamford, Mortgage Expert at The Mortgage Uni:Â
“A much bigger than expected fall in inflation in November is followed by a slight rise in December back to 4%. I don’t think this is anything to worry about at this stage as the 3-month trend is still downwards, but unfortunately I don’t expect we’ll see any positive movement in the next Bank of England base rate decision. A minor blow for borrowers but not a massive setback.”
Rohit Kohli, Director at The Mortgage Stop:Â
“This morning’s slight increase in inflation will come as a surprise to many, especially borrowers hoping for a continued fall to ease the pressure on their mortgages. The one positive to take away is that it’s a small change given the surprise drop last month so should not set hairs running at the Bank of England. It does however probably confirm that we won’t see Threadneedle Street cut the base rate for some time yet. We’ll see some movement in swap rates and it will be interesting to see how lenders react in the coming days. But for now now the message is of stability. Large swings would be a greater cause for concern.”
Katy Eatenton, Mortgage & Protection Specialist at Lifetime Wealth Management:Â
“Although this isn’t a huge increase, it is a movement in the wrong direction. It shouldn’t materially impact rates in the coming weeks, but it is still advisable to secure the best rate for your circumstances as early as possible, as they can always be reduced if rates continue to fall. However, once they increase, the rates will have gone. Speak to an adviser to help navigate the many rate changes and criteria updates we are seeing on a weekly, even bi-weekly, basis.”
