UK inflation rate: families warned of 'double whammy' of bigger mortgage bills and falling living standards

Hard pressed families were today warned of a painful “double whammy” of falling living standards and rising mortgage bills after higher than expected inflation last month.

The Consumer Prices Index – the headline measure of rising prices – remained unchanged at three per cent in January, surprising City forecasters who had been pencilling in a drop to 2.9 per cent.

Today’s “disappointing” figure’s will fuel fears that the Bank of England will order a rise in interest rates in May from the current level of 0.5 per cent.

They follow a warning from the Bank last week that rates will have to rise “sooner and faster” than previously thought to rein in prices.

They also mean that the squeeze on wages almost certainly continued into the New Year with shop prices galloping ahead of pay rises for the 11th month on the trot.

Meanwhile house prices in London rose slightly in December, according to latest figures from the Land Registry. 

The average cost of a home in the capital was up 0.8 per cent at £484,173. That lifted the annual rate of growth to 2.5 per cent, still the slowest of any region in the country. In Kensington & Chelsea they fell 10.7 per cent to an average of £1.21million.

TUC General Secretary Frances O’Grady said: “Inflation is still outpacing wages and working people’s living standards are falling fast. The government can’t keep on standing by and doing nothing. A plan to boost wages is urgently needed.”

The rate on inflation began to accelerate almost immediately after the Brexit Referendum in June 2016 when the 15 per cent slump in the value of the pound sent the price of imported goods soaring. It has now been at or above three per cent for five months in a row.

The cost of food rose by four per cent in January, with particularly big annual increases in the cost of fruit, which rose 7.2 per cent and fish, which was 8.9 per cent dearer.

Jacob Deppe, head of trading at online foreign exchange broker Infinox said today’s inflation figure “suggests the journey back to the Bank of England’s target of two per cent will be longer and more difficult than many might have hoped for.

“Stubbornly high inflation in the months ahead will only strengthen the argument for a rate hike in May and possibly one, if not two, further rate hikes before the end of the year.

“What is clear is that the cost of living is still outpacing average monthly wage rises and, while that could well change later in the year, it will be little comfort to hard-pressed households now.”

Howard Archer, chief economic adviser to forecasters EY ITEM Club  said: “We expect May’s likely interest rate hike to 0.75 per cent to be followed by another increase to 1.00 per cent in November. This assumes that the economy will see steady, middle of the road growth around 0.4 per cent quarter-on-quarter, wage growth will pick up gradually and inflation will ease back as the year progresses.”

For the Government Mel Stride, Financial Secretary to the Treasury said: “The good news is that inflation is expected to fall this year. We are helping cut costs for hard pressed families by boosting pay, cutting taxes for millions of people and freezing fuel duty at the pumps. This is all part of our plan to build an economy that works for everyone.” 

But Labour’s Peter Dowd, Shadow Treasury Chief Secretary, said: “Today’s inflation figures confirm that inflation remains around a five year high with working people still seeing their incomes squeezed as wages fail to keep up with prices, and household debt levels soar. 

“After eight wasted years of Tory economic failure, the people of our country simply cannot afford for Philip Hammond to do nothing anymore. We need an urgent change of direction. 

“The next Labour government will end austerity and introduce a real Living Wage of £10 per hour, to build an economy that works for the many, not the few.”

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