Inflation rises to 10 year high

Inflation increased to 5.1% during November, its highest level in more than 10 years, which could put pressure on the Bank of England to raise base rate tomorrow.

A combination of rising fuel, energy, clothing and second-hand car prices has resulted in the increase in the Consumer Price Index, which is what inflation is measured by.

Consumers will likely already be seeing prices rise at the petrol pumps and in supermarkets, but many finance experts are warning that inflation will rise further and reach 5.5% early next year. This will put added stress on many household budgets that have faced a difficult 22 months.

To help control rising inflation, the Bank of England may find itself under pressure to increase base rate tomorrow, but some experts warn that this may not control rising prices quickly enough.

Danni Hewson, financial analyst at AJ Bell, said: “Should the Bank of England raise rates tomorrow? Should they have done it 12 months ago because realistically that’s how long the measure takes to make an impact? Think back to December 2020 and imagine the reaction if the Bank had hiked rates then. Now consider where we are. There’s no question that prices are too high. There’s no question that if employers start to raise wages substantially that’s just going to add to the problem. There’s no question December 2021 is beginning to look a lot like December 2020, and there’s no question that whatever decision the Bank makes tomorrow it won’t bring a solution for today.”

If base rate does increase it will impact the interest rates set by banks. For mortgage borrowers this will likely result in variable rates starting to increase, but may not impact fixed rate deals. Meanwhile, for savers, a base rate rise may be welcomed as it could result in saving rates starting to increase.

Despite rates within the fixed bond and easy access savings chart rising over the past few months, there are still no savings accounts that can currently match or beat today’s inflation figures.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Inflation continues to take its toll on savers’ cash and may well do so for many months to come. Since the last inflation announcement, some of the top fixed rate bonds have improved, but elsewhere some fixed rate ISAs have worsened. These fluctuations reiterate the importance for savers to keep a close eye on the changing market and switch quickly to take advantage of a top rate. The murmurings of a base rate rise have quietened down since last month, but as inflation continues to rise, it’s only a matter of time before the Bank of England makes a move.”