Rising household costs ‘will be felt hardest by those already struggling’

Concerns that households who are already struggling to make ends meet could be hit hardest by the squeeze on living costs have been raised, as the Bank of England warned that UK inflation could rise to as much as 6.2% in a worst-case scenario.

The base rate was held at 3.75% on Thursday, but the Bank warned that the Middle East energy price shock could lead to a hike in rates.

UK inflation could rise to as much as 6.2% in a worst-case scenario where oil and gas prices remain elevated for a longer amount of time, the Bank said.

Peter Matejic, chief analyst at the Joseph Rowntree Foundation, said: “The effects of the rising costs and weakening labour market will be felt hardest by households already struggling to make ends meet.”

The rate of Consumer Prices Index (CPI) inflation rose to 3.3% in March.

For people looking to put money into savings, Clare Stinton, a senior personal finance analyst at Hargreaves Lansdown, said: “The savings environment remains attractive.

“Those looking to make their money work harder can access inflation-beating interest rates, with easy access cash Isas paying around four (to) 4.5% and fixed-rate deals offering above 4.5%.

“There are also some short-term fixes of around six months on the market, offering savers a balance between returns and flexibility.”

She added: “Challenger banks are to thank for pushing rates higher, but there remains a big spread between the top and bottom paying accounts as providers wait to see if rates will fall or rise next.

“So, it pays to shop around for the best rate, rather than defaulting to your high street bank.

“If you already have existing savings, it’s worth checking the rate you’re getting is competitive.

“Tucking cash savings into a cash Isa will shield your returns from income tax today and in the long run.”

Mortgage rates jumped following the Middle East conflict, but in recent weeks many lenders have been reducing rates.

David Hollingworth, associate director at L&C Mortgages, cautioned: “The downward trend in fixed rates has been gradual and it is far from certain that it will continue.”

He added: “There’s a danger that not only will the reductions in fixed rates slow but that they could also begin to reverse those recent improvements.

“If market rates remain where they are or rise further, lenders’ rates will inevitably feel upward pressure.”

Simon Gammon, at Knight Frank Finance, said that mortgage lenders offering the most competitive rates “are quickly inundated with demand and often need to reprice higher to manage volumes”.

He added: “This dynamic increases the risk of mortgage rates moving sharply on any negative news.

“Margins are extremely thin, meaning lenders have limited capacity to absorb volatility, and the combination of strong borrower demand and rapid repricing can create a snowball effect that amplifies rate movements.

“Borrowers should use this period of relative stability to lock in a deal – most can be renegotiated if rates fall back.

“The right deal for you will depend on your financial circumstances and appetite for risk, given the uncertain outlook.

“The gap between tracker and fixed rates is now notably wide, with fixed rates generally above 4.5% while some tracker products remain below 4%.”