The Consumer Prices Index (CPI) measure of inflation is above the Bank of England’s two per cent target and marks an increase from 2.3 per cent in the year to October.
Economists had widely expected an increase to the figure, with economists predicting it would climb to 2.6 per cent or 2.7 per cent.
In October, the Office for Budget Responsibility (OBR), said that the October Budget would increase inflation, partly because some of the rise in employer national insurance contributions would be passed onto consumers in the form of higher prices.
Deutsche Bank Research said in a note last week: “Higher energy prices will lift CPI to begin the year.”
What does it mean for interest rates?
Higher inflation means prices are rising quicker than otherwise, and this can prompt the Bank of England to keep interest rates higher for longer.
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Read MoreEconomists do not currently expect another cut when the Bank’s Monetary Policy Committee (MPC) meet on 19 December.
Capital Economics has said it forecasts that rates will continue to be cut gradually, and that they will fall to 3.5 per cent in early 2026.
What does this mean for mortgages, savings and pensions?
Mortgages are not directly affected by inflation, although many products are affected by the Bank of England’s base rate, which inflation influences.
If interest rates rise as a result of increased inflation, mortgage holders on such deals will see their rates increase.
Rates have been falling in recent weeks, and experts expect them to fall further next year. The inflation figure today is unlikely to have a major impact on mortgage rates.
Savings
The effects of inflation on the Bank of England’s interest rate also impacts savers, because of the base rate’s influence on savings rates.
Currently, the best easy-access account is 4.85 per cent with Atom Bank – above inflation. The best one-year fixed is with Habib Bank Zurich at 4.8 per cent.
Pensions
Higher inflation can eat into pensioners’ savings.
Annuities offer a guaranteed annual income in retirement. They offer an alternative to drawing down money from a pension pot, which could eventually run out, particularly if a retiree lives longer than expected.
But for retirees opting for one, time may be of the essence. With the Bank having cut interest rates, rates may start to fall.
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