Inflation rebound spells trouble for food bills and mortgages

Commenting, Charlotte Kennedy, Chartered Financial Planner at Rathbones, says: “The latest inflation reading may mark the start of what is hoped to be a short-lived spike, largely driven by the conflict in the Middle East, which has triggered the sharpest rise in fuel prices in over three years. It serves as a stark reminder of how quickly geopolitical tensions can feed into household finances.

“While oil and gas prices have eased from their recent peaks, they remain elevated and continue to pose a risk to the inflation outlook. Energy costs rarely stay contained – they tend to work their way into the broader economy, particularly in areas such as food and airfares, where higher input costs push prices higher.

“The pressure is building beneath the surface, but the full impact on food and drink prices may not yet be fully realised. The conflict in the Middle East has already delivered a cost shock that manufacturers are unlikely to absorb indefinitely. As these costs work their way through the system, Britons are likely to feel the effects more noticeably in the months ahead. For retailers that have locked in costs such as energy in advance, the lag before prices adjust could be longer.

“The rebound in inflation is a headache for the Bank of England, which is also trying to stimulate economic growth. The shift in the inflation outlook flips the script from interest rate cuts to the possibility of a hike if inflation remains stubbornly high. That would likely mean higher mortgage rates, adding to the cost pressures facing those looking for a home loan and putting further strain on borrowers coming to the end of cheaper fixed-rate mortgages.

“Against this backdrop, maintaining financial resilience is crucial. Keeping a close eye on your budget and making timely adjustments to discretionary spending can help soften the blow. Building a degree of flexibility – whether by cutting back on non-essentials or bolstering savings – can provide a valuable buffer against further price shocks.”