Homeowners faced a fresh blow after higher than expected inflation raised fears that interest rates could hit 5 per cent. Interest rates, which determine how much it will pay to borrow money, are at 4.25 per cent. They were predicted to reach a peak at 4.5% and then decline the following year to more typical levels. However, after the Office for National Statistics reported that inflation in March stayed above 10%, confounding economists' predictions that it would fall to 9.8%, traders increased their wagers that interest rates would increase.
The shock figure also raised questions about Rishi Sunak’s promise to halve inflation by the end of the year. The prime minister has made it one of his five key priorities for 2023 to bring inflation under control to “ease the cost of living and give people financial security”.
The Office for National Statistics claimed that decreased petrol prices were to blame for the drop to 10.1%, but this was countered by persistently high food prices, with bread and cereal reaching record highs. Grant Fitzner, ONS chief economist, said: “The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.
“Clothing, furniture and household goods prices increased, but more slowly than a year ago. However, these were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high.”