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Are UK Inflation Figures Starting To Soar Out Of Control?

December saw inflation rates in the UK shoot up by an entire percentage point, up from 1.9% in November to 2.9% in December. At the end of the month of December the UK government reverted the VAT rate from the interim reduced level of 15% back to the previous 17.5% rate. A small rise in costs on the face of it, but over all, taking all VAT chargeable items into account, that move together with the claims that various key shops quietly increased prices by more than the formal increase in VAT means that it is almost certain that prices have gone up more still in January.

So what level will that leave the January inflation statistics showing? No doubt, at least 3.0%, possibly well above 3.0%.

Does this mean that UK inflation figures are racing away out of control and what does it mean for the average person? Well, lots of huge lending banks are having to put up their standard variable rate mortgage rates. Why is this the case if interest rates are level and their lowest on record? The answer is very straightforward. The banks must charm masses of new savers and in plenty of cases they can only draw them by offering decent savings interest rates. Savers discreetly investing in accounts paying 0.5% are losing a small fortune when the inflation figure is racing towards the 3.0% mark. In real terms, they are actually losing 2.5% of their hard generated investment by keeping their cash sheltered away in the bank.

So, these watchful savers are having to look around carefully and with promising government backed savings and lately 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 obvious way of doing this - raising the basic interest rates that they are charging their borrowers who have been the beneficiaries of unparalleled low rates for a long time.

This hasty and unexpected rise in the standard variable rates along with the pound’s unhurriedly emerging recovery on the essential international money markets may well just be the prompt that the controlling Bank of England’s monetary policy committee might see as the motive to start to raise the base rate little by little after months of stagnation. They may want to control expenditure whilst having to care for the wealth of savers from losing out on their important investments. Their only tool for controlling this would be to increase the base rate at a snail’s pace.

Several 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 moderate the concluding hurt of the interest rises. They fear 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.

Keith writes for CompareMortgageRates.co.uk where you can uncover loads of information about how to compare uk mortgages.

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