UK inflation rose to a higher-than-expected 3.8% in the 12 months to July according to the Office for National Statistics, up from 3.6% in June and its highest level since January 2024.
Steeper air fares and food prices were behind the increase, with the latter up 4.9% in the year to July, up from 4.5% in June and the fourth consecutive rise.
The uptick in the Consumer Prices Index measure of inflation exceeded economists’ forecasts, casting fresh doubt over whether interest rates will fall further this year.
David Hollingworth, associate director at L&C Mortgages, said: “There was hope that there could be another rate cut this year to follow the latest reduction to 4.0% this month. However, that was a much tighter call with a 5-4 split in the voting. Those preferring a hold in base rate may only reaffirm their view in light of July’s inflation figures.”
Recent months have seen fixed-rate mortgage deals edge lower, with many lenders offering rates below 4% as markets priced in expectations of continued rate cuts. This downward trend has provided some much-needed relief to homeowners needing to remortgage and those hoping to get onto the property ladder.
However, lenders could now ease off on further reductions due to inflation proving more persistent than previously thought. Though any reaction is unlikely to be immediate or dramatic, the trajectory of mortgage rates appears less certain.
For borrowers who have been holding out in hopes of locking in lower rates, the latest figures are a reminder of how quickly conditions can shift. While the outlook is not especially bleak, there is a case for acting sooner rather than later.
Mr Hollingworth said: “Borrowers holding out for more cuts may want to keep close tabs on mortgage rates. It’s far from doom and gloom but securing a rate now will protect against any turnaround but still allow a further review before completion, if there are further improvements.”
If you’re worried about locking into a fixed mortgage rate at the wrong time, L&C’s free Rate Check service can provide valuable piece of mind. It allows you to secure a deal now, protecting you against any future potential increases, but also to review rates at any time until you make the final switch to a new deal.
