Inflation and savers/borrowers

The higher than expected inflation figures spell more doom and gloom for borrowers, as the Bank of England is under even more pressure to increase their base rate when its Monetary Policy Committee meets on the 3rd of November. That said, there are no winners here as even savers are on a hiding to nothing given the level of inflation.

The equation is simple: inflation at such whopping levels means more base rate rises, more uncertainty and more people facing growing financial pressure. We need precision leadership, prudent fiscal policy and confidence to turn this around. We are lacking all of them. It is going to be a tough year ahead, particularly for borrowers.

The latest rise in the Inflation rate will increase government borrowing even further, as September's figure is used to set pension and benefit levels next April. It will also increase the pressure on the Bank of England to tighten monetary policy more quickly. A base rate increase of 1% on November 3rd is now entirely possible, driving up mortgage rates to unaffordable levels for many, and likely leading to significant house price falls next year. For savers, of course, it's slightly better news as they should finally start to see a better return. But inflation is still casting a long shadow over savings rates.

The return of boom and bust, only without the boom part! The recent inflation figures only confirm what households up and down the country already know, things are getting more expensive - and quickly! Simply put household budgets can only stretch so far and already we are seeing things being prioritised, and that is before most people have taken a massive hike in their mortgage repayments. Expect interest rates to climb like a rocket as the Bank of England attempts to unravel the Tories economic scuttling and keep on top of inflation. Two tasks that would chill the heart of John Snow I fear. Whilst we may not have the spectre of unemployment yet, we have zombie households carrying on but without hope of turning their finances back into something approaching a balance. We will see significant rises in repossessions and bankruptcies next year which in turn will impact the job situation in the UK. Even pensioners will feel the pinch as savings interest rates fail to keep up with inflation, investments are hit by recession and now the potential of their state pension not matching inflation as the Tories desperately shore up an accounting hole of their own making. Winter is coming.

This latest inflation news is another blow for households that are already struggling. We are already seeing a fall in demand in retail and leisure, hitting small businesses hard. To make matters worse this increases the likelihood of another large rise the base rate at next months Bank of England MPC meeting. Now is the time for households and small businesses to plan ahead with their finances, prudent finances are they key in the coming months.