The Consumer Price Index (CPI), which measures the rise in the cost of living, rose more than expected from the 3.1% recorded in August.
This was driven by a sharp rise in fuel, but with energy prices rising in October, there are predictions that inflation numbers could rise further – and this could have an impact on interest rates.
“September’s higher-than-expected rise in inflation to 3.5% continues an unwelcome upward trend and will put pressure on the Bank of England to raise interest rates when it meets again in November,” said Craig Rickman, personal finance expert at Interactive Investment.
“Energy costs have already increased following the rate cap hike at the start of October, and households are starting to feel the impact as central heating systems continue to run.”
The Bank of England is due to make its next interest rate decision on Thursday 5 November, and there have already been expectations that this is the date they will implement a 0.25% rate hike. Today’s inflation data will reinforce these expectations.
For anyone who has a mortgage or is about to get one, this will be unwelcome news. In recent weeks, mortgage lenders have been raising rates on their fixed rate deals, meaning many households are experiencing rising repayments or anticipating a jump in payments when it is time to remortgage.
Combined with higher fuel and energy costs, this will be a major blow to many household finances.
Rachel Geddes, director of strategic lender relations at Mortgage Advice Bureau, said: “What happens to interest rates will be crucial for anyone with a mortgage, or anyone planning to get one, because that changes the mortgage deals on offer.
Advice to anyone who buys a property
“If you’re a first-time buyer, higher inflation doesn’t close the door on buying, but it can change what you can borrow,” she said.
“Lenders set fixed interest rates based on where they expect interest rates to go, not on where they are today.
“Inflation data like this can change those expectations before the bank does anything, so the mortgage offer you’re looking at now could look different with the key interest rate decision in November.
“If you already have an offer, it’s helpful to know where you stand now rather than waiting to see what happens.”
What to do if you are remortgaging
If your deal expires within the next six months, you can start looking now. There’s no need to wait until the next base rate announcement to start comparing your options, Geddes said.
“Lenders adjust their rates before the bank’s decisions, so what’s on offer today may look different by then,” she explained.
“For anyone moving house, it’s a good idea to test your budget against a slightly higher rate than you initially planned, so there aren’t any surprises before you finalize.
“Nobody can say for sure what the Bank of England will do next. What you can do is make sure your plans don’t depend on it getting it right, and that’s where an expert mortgage adviser comes in. A title can’t tell you what this means for your budget, but speaking to an adviser can.”
