INFLATION rising to 2.9% “puts Bank of England in a difficult position” in “unwelcome news for borrowers”, experts have warned.
The Consumer Prices Index (CPI) has risen to 2.9% in July, an increase from June’s figure of 2.6%, figures released today have revealed.
The increase takes inflation further above the Bank of England’s 2% target and comes at a difficult time for households hoping borrowing costs will start to ease.
Some mortgage lenders have announced a number of rate reductions in recent weeks, but experts warn a renewed rise in inflation could see mortgage rates rise again.
Attention will now turn to how the Bank’s Monetary Policy Committee responds, particularly after three members voted to raise Bank Rate from 3.75% to 4% at its July meeting.
While the latest rise was heavily influenced by energy costs rather than booming consumer demand, persistently higher inflation could strengthen the argument for keeping rates higher for longer – and potentially make further mortgage rate cuts a pipe dream.
Mike Hardie, Deputy Director for Prices at the Office for National Statistics, said: “Inflation rose in July, driven by a sharp increase in gas prices following this month’s change to the energy price cap. This was the largest rise in gas prices for almost four years.
“Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting. The prices of raw materials and goods leaving factories slowed again, driven by a drop in the prices of crude oil and refined petroleum respectively.”
Rising
Katy Eatenton, Mortgage & Protection Specialist at St Albans-based Eatenton Finance, said mortgage rates may go up.
She added: “Inflation rising is bad news for borrowers and could result in higher mortgage rates if prices continue to head north in the months ahead. Rates have been coming down in recent weeks, with major lenders such as the Nationwide and Halifax both announcing cuts over the past week, but that momentum may now be lost.”
Tracey Dixon, Buy-to-Let Mortgage Specialist & Owner at Cardiff-based Pure Mortgage and Protection, said borrowers shouldn’t wait for the right moment to lock into a deal.
She added: “For borrowers, the rise in inflation to 2.9% is a reminder that the path to lower interest rates is unlikely to be completely smooth. The key point for mortgage holders is that a rise in inflation does not automatically mean mortgage rates will rise. Fixed mortgage pricing is influenced heavily by swap rates and lenders’ funding costs, so we can still see mortgage rates move independently of Bank Rate.
“For anyone approaching the end of a fixed deal, I wouldn’t recommend waiting for the ‘perfect’ moment. Trying to time the mortgage market can be a costly gamble. It is sensible to review your options early, secure a deal if appropriate, and then keep checking the market before completion if your lender allows you to switch to a better rate. For landlords, higher inflation also reinforces the importance of stress-testing costs and cash flow rather than focusing on the headline interest rate alone.”
Chris Barry, Director at London-based Thomas Legal, said the Bank of England is in a tough spot with inflation rising again.
He added: “A rising trend in inflation puts the Bank of England in a difficult position. The Monetary Policy Committee (MPC) will be considering raising interest rates to prevent inflation accelerating into the 3+ percentage points but will also be very mindful of slowing economic growth, a reduction in jobs vacancies and a sharp decline in housing market transactions.
“The lead up to the Autumn Budget, and the first with the new prime minister, could be a slow and painful few months, with the hope a rabbit can be pulled out of No 11’s hat.”
Bad news
Shaun Sturgess, Director at Swansea-based Sturgess Mortgage Solutions, said this showed that mortgages pricing can change quickly.
He added: “Inflation rising sharply once again highlights the dangers of borrowers holding out for lower rates. Mortgage pricing can change direction in a flash and this data is a timely reminder.”
Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, said it is not certain that the Bank of England will raise its base rate.
He added: “Higher inflation is unwelcome for borrowers hoping for faster interest rate cuts, although one month shouldn’t determine the Bank of England’s next move.
“Mortgage rates also don’t simply follow Bank Rate; fixed-rate pricing reflects where markets expect rates to go next. Borrowers waiting for significantly cheaper mortgages should remember those expectations can move in either direction.”
Riz Malik, Independent Financial Adviser at Southend-on-Sea-based R3 Wealth, said if inflation rises again then the Bank of England could be forced to raise its rate.
He added: “We have three more Bank of England rate announcements for 2026 and we could be close to getting through the year with no base rate increases. However, rising inflation could stop that dead in its tracks. The last thing the UK’s businesses and households need at present is a rate rise to add to their woes.”
Matt Coulson, Founder at Rickmansworth-based Heron Financial Ltd, said the hope of cheaper mortgages is being extinguished.
He added: “For borrowers, this is the number that keeps the waiting game going. Inflation ticking back up to 2.9%, driven mostly by a sharp jump in gas prices, makes a near-term rate cut even less likely than it already was. The Bank held last month with some of its own members wanting rates higher, and a rising headline gives the doves nothing to work with.
“The important thing, though, is what’s behind it. This is largely an energy story, a supply shock rather than the economy overheating, and in theory the Bank can look through some of that. But it’s still nervous, and this hardens the case for sitting on its hands. For anyone hoping cheaper mortgages were around the corner, they’ve just moved further away.”
Unwelcome
Manooch Suree, Director at Uxbridge-based Zinga Financial Services, said sitting back and waiting for interest rates to come down is a fool’s errand.
He added: “July’s jump from 2.6% to 2.9% could make the Bank of England more cautious about cutting Bank Rate. For mortgage borrowers, that potentially means higher rates for longer but it doesn’t mean mortgage rates are suddenly going up. Mortgage pricing is driven by market expectations and swap rates, not just today’s inflation figure.
“The takeaway? If your mortgage deal is ending soon, don’t sit back and wait for the ‘perfect’ rate. Get ahead of it, understand your options and be ready to act if rates move in your favour. The best time to review your mortgage? Before you need to.”
Michelle Lawson, Director at Fareham-based Lawson Financial, said this could be the start of a storm.
She added: “I don’t think anyone will be shocked to read this. People are actively seeing inflation bite and the timing of these rises just before winter just can’t be made up. The Government gifts of £150 off energy prices are swiftly gobbled up by something else which begs the question of what the point is to the costly exercise.
“A disappointing winter is on the cards as we can expect more of the same. Will this be a bump in the road for borrowers or the start of a storm?”
