UK inflation rises to 3%
As inflation races away from the UK’s 2% target, interactive investor’s Craig Rickman considers what it means for the chances of a March interest rate cut.
19th February 2025 09:00
Craig Rickman, Personal Finance Expert at interactive investor, comments: “The news that inflation came in hotter than expected in January means the chances of a March interest rate cut now look remote. Year-on-year CPI now stands at its highest level in 10 months, while core inflation and services inflation, two elements that have proved a barrier to lower interest rates, accelerated sharply too.
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“This gives the Bank of England food for thought when policymakers meet again on 20 March. The Bank has alternated between reductions and holds since it kickstarted the rate-cutting process in August 2024 and after voting to slash the Bank Rate a couple of weeks ago, it seems this trend will continue with a hold the most likely outcome next month. Policymakers will also be wary about inflaming stubborn wage growth after it sped up to 6% in the final three months of 2024.
“Inflation is expected to accelerate further later this year, largely due to higher energy prices, and there are several headwinds that may keep prices elevated for longer, including measures announced at the Autumn Budget. The VAT hike on private school fees is already starting to bite, while the employer national insurance increase and national minimum wage rise are set to kick in from April. Many businesses have warned these additional costs will force them to raise prices.
“As inflation races away from the UK’s 2% target, it offers a timely reminder to investors and savers to make sure their money is working as hard for them as possible. If inflation outpaces the return you receive, your wealth will erode in real terms. If not kept in check over long periods, this can have a punishing impact on your financial future.
“With tax year end fast approaching, one simple task is to fight inflation to make sure you’re using the most of your tax wrappers, such as pensions and ISAs. Paying less is one of the most effective ways to guard against the impact of price rises, as it means you get to keep more of any growth and income, helping your money to grow faster.”
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