December saw inflation rates in the UK jump by an full percentage point, up from 1.9% in November to 2.9% in December. At the end of the month of December the UK government switched the VAT rate from the short-term reduced level of 15% back to the preceding 17.5% rate. A small rise in expenditure on the face of it, but over all, taking all VAT chargeable items into account, that move along with the claims that several key retailers silently increased prices by more than the official increase in VAT means that it is almost definite that prices have gone up more still in January. So what level will that leave the January inflation statistics showing? No doubt, no less than 3.0%, probably well over 3.0%. Does this mean that UK inflation figures are charging away out of control and what does it signify for the regular person? Well, many big lending banks are having to put up their standard variable rate mortgage costs. Why is this the situation if interest rates are fixed and their lowest on record? The answer is somewhat uncomplicated. The banks must charm a load of new savers and in a large number of cases they can only draw them by offering decent savings interest rates. Savers cautiously investing in accounts paying 0.5% are losing a small fortune when the inflation figure is racing towards the 3.0% mark. In actual terms, they are in fact losing 2.5% of their hard generated investment by keeping their cash sheltered away in the bank. For that reason, these watchful savers are having to look around carefully and with promising government backed savings and recently rescued banks being able to afford to pay out higher interest rates, other banks must raise the cash to follow suit. And there is only one simple way of doing this - increasing the basic interest rates that they are charging their borrowers who have been the beneficiaries of exceptional low rates for a long time. This hasty and sudden rise in the standard variable rates along with the pound's slowly promising recovery on the important international money markets may possibly just be the prompt that the controlling Bank of England's monetary policy committee may see as the reason to start to raise the base rate gradually after months of stagnation. They may want to manage spending whilst having to look after the wealth of savers from losing out on their precious investments. Their only means for controlling this would be to increase the base rate slowly. Various observers think that the anticipated base rate increase must come at some point in the future and that if it is sooner rather than later, it could ease the final sting of the interest rises. They worry that if the interest rates are not raised in the near future, then they might have to raise a lot more in later months. Only time will tell.
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December saw inflation rates in the UK increase by an full percentage point, up from 1.9% in November to 2.9% in December. What level will that leave the January inflation numbers showing? No doubt, at least 3.0%, maybe well over 3.0%.
Keith works for for CompareMortgageRates.co.uk where you can read loads of information about how to compare uk mortgages.
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