Yesterday’s July inflation data marked two years since the UK’s cost-of-living crisis took off. In August 2021 the annual rate of CPI inflation jumped from 2% to 3.2% – the first meaningful upward departure from the Bank of England’s target in over a decade, and the start of the rapid ascent to a peak of 11.1% in October 2022.
AJ Bell head of investment analysis, Laith Khalaf, says: “The last two years have been a miserable time for consumers, who sprung out of lockdown only to find themselves in the frying pan of an inflationary crisis. The Bank of England actually started raising interest rates before the US Fed and the ECB, though of course questions remain around whether the problem has been exacerbated or indeed caused by the ultra-loose monetary policy we saw in the preceding decade.
“Inflation has caused a spike in interest rates, as the Bank of England has tried to temper rising prices by bumping up the cost of money. Ironically, higher interest rates are now providing another leg to the cost-of-living crisis as consumers struggle to pay their mortgages as well as their energy and food costs. There are signs that inflation is finally falling, and that we may be getting to the end of the rate hiking cycle. However, there is unfortunately still pain for households in the road ahead, as homeowners roll off cheap borrowing deals and find themselves in the deep end of the current mortgage market.”