Inflation rises to 3%: Experts respond

• The Treasury says the road to achieving the Bank of England’s 2% inflation target will be “bumpy”, after the rate rose from 2.5% to 3% in January – the highest level in 10 months

• Today’s figure – which economists had predicted would rise to 2.8% – was driven in part by air fares, food and private school fees, the Office for National Statistics says

Experts respond:

UK inflation surprises at 3%, but disinflation trend remains intact

Lale Akoner, Global Market Analyst at eToro, says: “UK inflation rose more than expected to 3%, but services inflation came in lower than anticipated, signaling a mixed picture for the Bank of England (BoE). Despite this upside surprise, we believe the broader disinflation trend remains intact, supporting the continuation of the BoE’s gradual rate-cutting cycle.

“While inflation is still above target, the BoE is likely to prioritise growth concerns, as the UK economy has stagnated in recent quarters. However, the pick-up in wage growth could make policymakers more cautious, preventing an aggressive rate-cutting approach. Given these dynamics, we expect the BoE to proceed carefully with monetary easing, balancing the need to support the economy while keeping inflation expectations anchored.”

“Inflation increasing is never good news for homeowners.”

Ben Thompson, deputy CEO of Mortgage Advice Bureau said:

“Inflation increasing is never great for borrowers. However, the good news is mortgage pricing has been on a downward trend since the Bank of England’s decision to cut interest rates earlier this month. This means the rates available now are likely to be considerably lower for those who took out two-year fixes during the 2023 peak. Speaking with an adviser and getting mortgage ready remains crucial to securing the best possible deal.”

How does inflation affect borrowing and impact mortgage rates?

Ryan Etchells, Chief Commercial Officer at property lender Together, said: “The Office for National Statistics (ONS) announcement that inflation has risen to 3% could deal a minor blow to the mortgage market in the short term, but it is not unexpected. In fact, we may see further increases, because of inflationary factors including higher energy costs and wage growth, as well as the potential impact of US president Donald Trump’s tariffs on the UK economy.

“However, the fact that the Bank of England (BoE) cut its base rate by 0.25% earlier this month suggests that its members were not overly concerned about a steady rise in inflation, although they will be keen that it is brought nearer its 2% target this year. This latest rate reduction has allowed mortgage lenders, including Together, to reduce their own rates – passing on savings in borrowing costs to home buyers and people remortgaging.

“Looking longer term, stubborn inflation, if it materialises, may lead to the Bank holding the base rate or cutting more slowly across 2025 than predicted by most economists at the end of last year. This is one factor which will affect mortgage lenders’ costs of funds and lenders’ decisions for future rate cuts. We will be watching closely to see how the Bank responds to inflationary pressures in the next 12 to 18 months.”

M&A expert comments on rising UK inflation

Simon Woodcock, Partner at LAVA Advisory Partners, said: “So long as inflation sits above the Bank of England’s 2% target, the government’s management of rising prices will remain a focus. However, I don’t believe it’s either unmanageable, or the most important performance indicator for the country.

“We need to keep in mind that, whilst inflationary pressures are still an issue for consumers and businesses alike, the rate of inflation is not only still significantly lower than it has been for much of the past three years, but it’s also significantly more stable. We’re no longer experiencing the rollercoaster of shocks of the Trussonomics era, and the stabilising environment, along with the recent reduction to the base rate, is opening up funding options thanks to a lower cost of borrowing. This should hopefully unlock underlying growth, thereby providing a boost to the M&A industry, and particularly the lower mid-market.”

UK inflation on the rise – Mortgage lender comments on CPI data

Tim Parkes, CEO of RAW Capital Partners, said: “Following January’s unexpected fall in inflation, many investors will have hoped for a dose of déjà vu this morning – it would have provided more ammunition for the Bank of England to cut the base rate again in March. While this hasn’t materialised, a slight uptick in inflation is no reason to panic. The Bank of England had itself forecast this rise, so today’s data is not going to derail plans for further base rate reductions on Threadneedle Street – we are still expecting rates to come down steadily across the year.

“For the UK property market, there can often be a prevailing sense of pessimism whenever we they see inflation rise. However, it’s important to remember that the market has had a strong start to the year. House prices have risen according to all of the major indices, while buyer and investor demand is red hot amidst falling rates and ahead of April’s Stamp Duty changes. There’s no reason for these trends to reverse in response to today’s increase, particularly if lenders can provide the adaptability and support that brokers and borrowers will be looking for.

“We must take stock of the bigger picture. As ever, the property market is bubbling away with both challenges and opportunities, so the onus remains on lenders and brokers to support borrowers as best they can, helping them to navigate an evolving yet competitive market. I expect that flexible financial products, firm commitments, and transparent communication will continue to be vital qualities for lenders to provide in the months ahead.”

Lily Megson, Policy Director at My Pension Expert, said: “Just as things may have been looking up, today’s announcement has brought Britons back down to Earth with a thud.

“At a time when households were hoping to save and plan for retirement more confidently – especially following the Bank of England’s decision to cut interest rates earlier this month – rising consumer prices will now cast fresh doubt over their financial security. Many will be left wondering how to protect their long-term plans while managing mounting day-to-day costs.

“The government can’t continue to bury its head in the sand. They must work with the financial services sector and ensure that every avenue to financial education, guidance and advice is open and accessible. Then, and only then, can Britons be fully empowered to understand how they can achieve their financial goals.”