11.1% inflation figure makes ‘grim but unsurprising reading’ – reaction from IFAs, mortgage brokers and finance experts

by | Nov 16, 2022

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As we digest the latest ONS inflation data published this morning, which showed UK inflation coming in at 11.1% for the twelve months to October – and which has exceeded most experts’ expectations – it’s clear from what IFAs, mortgage brokers, investment and financial experts are saying that this latest bombshell just reminds us all that there are significant problems ahead for borrowers and savers like.

What do our experts say? Their comments are shown below:

Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com: “These latest figures make grim but unsurprising reading. Inflation continues to rise sharply and shows no sign of abating. It’s now more likely there will be another hefty base rate rise at next month’s Bank of England Monetary Policy Committee meeting. Central banks are competing to protect their currencies from falls that increase domestic inflationary pressures, particularly in the price of imported and Dollar-denominated gas and oil. While further rate rises are good news for long-suffering savers, who will finally see a decent return, mortgage rates will only get more expensive next month. The level of payment shock next year for those remortgaging will be off the charts.”

Laura Suter, head of personal finance at AJ Bell, comments: “The rise in energy bills in October has pushed inflation to a new high, with CPI hitting 11.1% in October, taking it to the highest rate for more than 40 years. This is broadly in line with the Bank of England’s latest expectations, but as recently as February the Bank was expecting a peak of around 7% this year – showing just how fast the environment is changing.

“Buried in the details of the data are some alarming facts. In the past month alone we saw the same increase in prices that we did in the entire year to July last year. On top of that, energy costs have risen by almost 90% in the past year, with gas prices more than double what they were a year earlier. That clearly is unsustainable for families.

“The Government’s Energy Price Guarantee had been heralded as a way to keep inflation down, but the ONS figures show that it didn’t have the huge limiting effect that many claimed. It projects that inflation would have hit 11.8% in October had the cap on energy costs not been introduced.

“It’s not just energy costs rising, food prices have shot up again, seeing the highest inflation for this category in more than 45 years. Anyone who has done their weekly shop will feel this keenly, and while many are trading down and ditching the brand names, others are simply having to go without.

“Falling petrol prices and a drop in the cost of second-hand cars were the only big pressures trying to push inflation down. Fuel prices have dropped back from their high – but they are still more than 20% higher than this time last year. The fact that the cost of a second-hand car has dropped back below the cost last October will be of little comfort for those struggling to pay energy bills or for their food shop.

“While the headline figure of 11.1% is useful to have, in reality everyone’s personal inflation figures will be different. If you spend more of your income on food and energy bills, and aren’t benefitting from lower petrol and car prices, your headline figure will be far higher. This is why many people feel like they are struggling with a rise in costs far higher than 11%.

“The ONS estimates that the lowest income households are actually seeing inflation of 12.5%, while the wealthiest people are seeing lower inflation of just 9.6%. Those in social housing are facing some of the highest costs, while private renters are experiencing lower price rises.”

Rob Clarry, Investment Strategist at wealth manager Evelyn Partners, said: ‘Today’s report provided another disappointing set of inflation data. Headline CPI increase came in at 11.1%, almost half a percentage point more than the consensus expectation. This was largely driven by significant increases in gas and electricity prices, despite the substantial support provided by the government through the Energy Price Guarantee (EPG). Strikingly, the ONS estimates that without implementation of the EPG, electricity, gas and other fuels prices would have risen by nearly 75% between September and October 2022 (instead of 24%). This would have taken headline inflation closer to 14%.

Despite this challenging headline figure, we do still expect inflation to ease into next year. This is likely to be driven by three main factors. First, the base effects will be more favourable, with annual comparisons made against months at the start of 2022 when prices were already surging. Second, we are starting to see the impact of higher interest rates feed through into the real economy, which will slow demand for goods and services. Third, the tightness we have seen in the UK labour market is starting to show some signs of easing. The UK unemployment rate increased from 3.5% to 3.6% this week and the number of job vacancies fell in the three months to October.

Financial markets had been expecting the Bank of England to raise interest rates by 50 bps at their next meeting on 15 December. While the expected peak in UK interest rates had lowered recently after the Governor of the Bank of England, Andrew Bailey, suggested that market expectations were too lofty, overshoots like this will only raise expectations that inflation could remain sticky. The overnight index swap market had been pricing in a peak of around 4.5% instead of the 6% we saw in September, but this could rise after today’s reading.

Markets will now look to tomorrow’s Autumn Statement for further signs of where the UK economy is heading. The Chancellor faces the unenviable task of trying to avoid a recession while also restraining public spending. Tighten fiscal policy too much and he runs the risk of deepening the impending recession. But too little could well alarm gilt investors and prompt another sell-off. 

We can also expect to receive more details on future energy support following the governments’ decision to end universal support on energy bills in April 2023, instead of October 2024. The level of support will be important in determining whether we see another inflationary spike next Spring.”

Carla Hoppe, founder of Wealthbrite: “Inflation is to cash what a moth is to your favourite jumper. Three questions all savers should be asking in a high-inflation environment are, what are my savings goals, how quickly would I need access to my cash if my saving goal is met, and am I getting the best reward for the hard work I’ve put in to save? It may feel like hard work but switching accounts can be a simple and effective way to get a higher interest rate on cash savings. Many banks can now do a switch for you in a matter of days, taking away a lot of the admin hassle. For people with longer term savings goals, investing may be the ticket to beating inflation. Take a look at investment options such as a Stocks and Shares Individual Savings Account (ISA). Only 5% of the UK population use a Stocks & Shares ISA but they can offer a great and tax-efficient way to protect your savings. Of course, as with any investment the value of your money may go up as well as down.”

David Robinson, co-founder and financial planner at London-based Wildcat Law: “Inflation is the Grinch that will ruin many a Christmas this year. Like a disease, inflation is bad news for everyone, from savers to borrowers. Whilst savers may benefit from interest rate rises, they will be nowhere near close to replacing the loss in value due to inflation. For borrowers they will face the dual problem of rising prices and the increased cost of serving any debt that was not on a fixed rate. In a country that has historically put a lot of Christmas expense on credit cards, that is very bad news. Expect the British economy to be the sick man of both Europe and the main economic nations in 2023. How long before ministers start comparing our economy to Russia’s in a desperate attempt to cover their chronic mismanagement?”

Ian Hepworth, director of Croydon-based Funding Solutions UK: “11.1% inflation is serious and then some. At 8%, it meant that households had lost the equivalent of one month’s income. Now their real incomes have dropped even further. This will leave little income for the average household to save or invest. Given inflation is still rising we will likely see further increases to the Bank of England base rate, which will help savers but hammer borrowers. Coupled with the expected changes to the R&D tax credit scheme in the Autumn Statement, rising interest rates could well stifle investment and innovation. We need innovation to increase productivity so that we can achieve economic growth, but rising rates will scupper that.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial: “I was worried inflation might come in higher than predicted, and now that it has the Bank of England will react by increasing rates more than necessary, which will hit those with mortgages like a train. I plead with the Bank of England to stop and think. Rates do not need to go up. It is increased energy costs that are filtering through to everything else in the economy that are causing rising inflation, not people spending excessively. Soon enough we will be in technical recession and the last thing we need is higher interest rates. It won’t help, it won’t control inflation and will simply be counter-productive, resulting in a more severe recession and an increase in poverty and homelessness.”

Riz Malik, director of Southend-on-Sea-based R3 Mortgages: “Today’s inflation figures hit a new 41-year high fuelled by energy prices. However, many economists predict that this is the peak. Even the Bank of England’s forecast expects CPI inflation to drop to 5.2% by the end of 2023 and 1.4% a year thereafter. Inflation is a global problem. However, the UK seems to be suffering the most. The war in Ukraine is playing a key role. However, we are also seeing the fallout from Brexit even though the Government is not talking about it. Thursday’s fiscal statement is going to shape what 2023 looks like. I’m not sure how much sleep Rishi and Jeremy will be getting tonight.”

Michael Webb, Managing Director at Brandon-based Mortgage Republic: “With inflation as high as it currently is, there will be no sign on the horizon of falling interest rates at the Bank of England. Whilst the current rate of inflation is 11.1%, it’s not something we were not expecting. However, the news will cause some uncertainty and caution I believe over the holiday season, hitting retail and hospitality sales at a critical time of year for them. April 2023 is a critical month for the inflation figures moving forward. In April 2022, inflation was at 9% following a large 2% jump from March 2022’s 7%. Inflation will become really painful if it begins to compound year on year at such high levels, and as as such there will be the hope the interest rate interventions will begin to see the inflation rate drop significantly by this time, otherwise the cost of living may begin to spiral out of control for more and more people.”

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