UK inflation rate and what it means for your mortgage

What is inflation?

Inflation is the rate at which the general level of prices for goods and services rises over time. When inflation is positive, each pound you hold buys you a little less than it did before. When it is high and persistent, it erodes purchasing power noticeably, which is why it matters to households, businesses, and the Bank of England.

In the UK, inflation is most commonly measured using the Consumer Prices Index, or CPI. The Office for National Statistics (ONS) tracks a representative basket of everyday goods and services, from food and clothing to energy bills and transport costs. Each month, they compare the current price of that basket to what it cost a year ago. The percentage change is the CPI inflation rate.

A related measure, CPIH, also includes owner occupier housing costs such as mortgage interest payments and estate agent fees. CPIH gives a slightly fuller picture of the cost of living for homeowners and is increasingly used alongside the headline CPI figure.

The current CPI rate

The rate shown above is updated automatically from the ONS data. Inflation figures are published monthly, roughly four to six weeks after the reference period. The Bank of England targets 2% inflation over the medium term, so a rate above that means the MPC will be considering whether further action is needed.

For the full dataset and historical figures, you can visit the ONS inflation data pages directly.

How inflation affects mortgage rates

Inflation and mortgage rates are closely connected, but the link is not always direct. The main channel runs through the Bank of England base rate. When inflation rises above the 2% target, the Bank of England typically responds by increasing the base rate to make borrowing more expensive and slow consumer spending. Higher borrowing costs reduce demand, which in turn tends to bring prices back down.

If you are on a fixed rate deal, high inflation will not change your current monthly payment, but it may affect the rates available to you when your deal expires and you need to remortgage. It is worth reviewing your options well before your fixed rate ends rather than waiting until the last moment.

For a full explanation of how the base rate works and why it changes, see our Bank of England base rate guide.

What the Bank of England does about it

The Bank of England has a single primary mandate from the government: keep inflation at or close to 2%, as measured by CPI. The body responsible for achieving this is the Monetary Policy Committee, or MPC.

The MPC is made up of nine members, including the Governor of the Bank of England, and meets roughly eight times per year to decide whether to raise, lower, or hold the base rate. Their decisions are based on a wide range of economic data, including current inflation figures, wage growth, unemployment, energy prices, and global economic conditions.

When inflation is too high, the MPC raises the base rate. Higher interest rates make it more expensive to borrow and more rewarding to save, which tends to reduce consumer spending and bring prices back under control. When inflation falls back towards target, the MPC can begin reducing rates again.

The MPC publishes its decisions and accompanying Monetary Policy Reports on a fixed schedule. Markets watch these closely, and the commentary around each decision, not just the rate itself, can move mortgage rates in anticipation of future changes.

What should you do now?

If inflation is above the Bank of England target, as it is at the time of writing, the direction of mortgage rates depends on how quickly prices come back down and how the MPC responds. This is genuinely uncertain, and anyone who tells you they know exactly where rates are heading is guessing.

What you can control is whether your mortgage is working as hard as possible for your circumstances right now. Whether you are on a tracker that could move with any future rate changes, a fixed rate approaching the end of its term, or an SVR that is costing you more than it should, the right conversation at the right time can make a significant difference.

We monitor inflation data and rate movements every day as part of our job. A free call with one of our advisors will give you a clear picture of your options and a straightforward view on what makes sense for your situation.