Inflation is likely to rise again when figures are released next week, experts have suggested.
Many people may be wondering what this means for their personal finances.
CPI rose by 2.6 per cent in the year to November 2024, up from 2.3 per cent in the 12 months to October. The November figure is the highest rate since March 2024.
Susannah Streeter, Head of Money and Markets, Hargreaves Lansdown said: “Headline CPI inflation is expected to continue to rise slightly, continuing the unwelcome trend we’ve seen since October.
“Prices at the pumps ticked higher over the month, while food price inflation jumped to 3.7 per cent in December, the highest level since March.
“Even though the economy has been stagnating and going into reverse in recent months, wage growth is still running hot.
“The annual growth in private sector regular average weekly earnings rose to 5.4 per cent in the three months to October, which is likely to keep prices charged by companies higher.”
Some large retailers have already said they’ll raise prices, while others may limit wage increases to balance the extra costs
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She explained the coming months are uncertain as companies face higher National Insurance contributions.
Some large retailers have already said they’ll raise prices, while others may limit wage increases to balance the extra costs.
The threat of tariffs under the new Trump administration has lessened, but there’s still a risk that this could push up the value of the dollar and make imports more expensive.
However, sources suggest that any new tariffs could focus only on key industries, potentially minimising the impact.
The UK also exports more services to the US, which could help protect it from major effects.
When it comes to interest rates, inflation is still expected to rise further, but policymakers are aware of the weak economy, so they’re likely to avoid cutting rates too much.
While investment in infrastructure is expected to help growth, many cautious companies concerned about higher taxes may hold back on spending.
Streeter added: “So, it still seems likely that the Bank of England will vote for at least two interest rate cuts over the year, with a 66 per cent probability of a cut in February being priced in by financial markets.”
The UK Consumer Price Index (CPI) for December will be released on January 15.
What does this mean for your savings and mortgages?
UK savers can still secure impressive returns at the start of 2025, with some easy access accounts offering rates as high as five per cent.
Even without promotional bonuses, savers can earn up to 4.85 per cent on their deposits, according to Sarah Coles, Head of Personal Finance at Hargreaves Lansdown.
These rates have proven more resilient than expected, particularly in the competitive easy access market. However, experts warn that those looking to lock in strong returns should act swiftly, as rates are expected come down in the coming months.
Coles continued: “Fixed rate account have also held up impressively, so much so that the gap between easy access and fixed rates is closing. We can expect easy access rates to drop behind fixed rates in the coming weeks, and for the market to normalise.
“However, this will be against a backdrop of rates that gradually trend downwards, so if you have money you’re planning to fix for a period, don’t hang about: take advantage of these rates while they’re still around.”
For savers, switching providers could yield better returns, particularly through online banks and savings platforms.
Those who find their current provider has reduced rates are encouraged to “vote with your feet” and seek more competitive offers elsewhere.
The market expectations currently point to only a couple of interest rate cuts through 2025.
Coles warned that higher inflation isn’t great news for mortgage borrowers, but it’s “unlikely to heap significantly more misery on them either”, because this is largely priced into current deals.
Because the two-year fixed rate market is relatively reactive to inflation data, it may rise from its current position, just under 5.5 per cent, to a point just over it, but it’s not going to transform the mortgage landscape.
Coles said: “Variable rate borrowers, meanwhile, still have the hope of a rate cut in February, but recent experience will tell them not to get carried away with optimism.
“It means it’s still going to be key to shop around for a decent deal when remortgaging, and negotiate on the asking price when buying. It also means buyers still need all the help they can get – whether it’s from the Bank of Mum and Dad or the bonus from a Lifetime ISA.”
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