Should we be worried by the latest increase to inflation?

The rise in inflation from 3.3% is only surprising in that it wasn’t higher. Us mere mortals have already taken the first financial jab to the nose with mortgage and fuel price hikes, but the problem may well be the follow up right hook in a months time as I fear the affect will be even larger with the prolonged closure of the Strait of Hormuz. That being said, we are a long way off the dizzying double digit inflation seen in 2022.

Whilst the forecast Bank of England rate reductions at the start of the year are nothing more than fantasy at this stage, it also feels hard to justify interest rate increases as they are unlikely to curb the problem. Consumers are paying more for their mortgage, their fuel, their food, and their energy, through necessity rather than choice.

The real solution here is for the government to stop quibbling like school children in parliament and start focussing on contributing to a solution or a strategy to keep the country moving!

The Middle East conflict has structurally disrupted supply chains and Europe and the UK are paying a premium for every molecule of gas. This is not a shock that fades in a quarter or two. It feeds through into everything manufacturing costs, transport, food production. So this isn't "inflation" in the way most people think. What we call inflation is really the loss of purchasing power caused by decades of credit expansion and money printing. The 3.3% CPI figure is a lagging indicator that actually understates the real cost of living squeeze on ordinary people. Energy, food, and insurance are all running well above that headline number. The Bank of England knows this, but raising rates further would threaten to blow up the mortgage market and tip the UK into a deep recession. So they sit on their hands. That's not stability. That's paralysis. Sterling will grind lower over time against real assets, even if it holds up against other equally troubled fiat currencies like the euro.

As the conflict drags on, higher inflation looks to be getting sticky. From looking to cut interest rates, the bank of England are likely to do a 180 and consider increasing rates to stem this increase. If borrowers are holding off fixing their rates, this inflation number should cause them concern and get them talking to their advisors

Headline CPI jumped to 3.3%, but the more alarming figure is services inflation hitting 4.5%, exceeding forecasts. Driven by surging energy prices and regional conflict, this uptick signals that domestic prices are following energy costs higher, risking embedded inflation. Consequently, the Bank of England faces a difficult path; while rates will likely hold next week, summer cuts are now off the table, and hikes later this year remain a distinct possibility. The primary concern is that a prolonged blockade of the Strait of Hormuz could mirror the 2022 inflationary crisis. As fuel costs filter through the economy, the Bank will likely prioritize price stability over growth. For consumers, this means continued pressure on borrowers and those remortgaging, while savers should act quickly to secure current yields. Expect a volatile summer as the market watches for "second-round effects" that could further solidify high interest rates for the foreseeable future.