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Autumn budget: The government is ‘willing to work to tackle inflation’. What does this mean for mortgages and savings?


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The chancellor used his autumn budget to announce that the government was “willing to work with inflation” amid growing concerns about rising living costs. So what does this mean for mortgage holders and savers? Let’s take a look.

What did the Chancellor say about inflation?

A number of measures were announced in the autumn budget, including beer tariffs, universal credit and changes to the government’s housing construction strategy. However, for existing homeowners and savers, the most important announcement comes when the Chancellor reveals that the government is ‘ready to work’ to tackle inflation.

Sage Sunak explains, “I understand people are concerned about global inflation – but they have a government here that is willing and willing to work from home.

He added, “In terms of our fiscal policy, we are going to meet our commitments on government services and capital investment, but we are going to do so keeping in mind the need to control inflation.”

In his speech, the Chancellor suggested that the rising inflation rate could be due to increased energy demand as well as supply chain problems.

Sunak’s statement will be welcomed by those concerned about rising inflation, especially as the Office for Budget Responsibility (OBR) revealed on October 27 that inflation could rise to between 4% and 5% next year. Currently, inflation sits at 3.1% according to the consumer price index.

The Chancellor’s tone on inflation contrasts with the Prime Minister’s recent remarks. Earlier this month, Boris Johnson revealed that he was ‘not worried’ about rising prices, claiming that supply chains would ‘sort themselves out quickly’.

What about the UK economy?

The chancellor described the UK economy as “strong” in his autumn budget. His comments came after the OBR claimed the British economy would return to pre-epidemic levels six months earlier than forecast.

Sunak revealed that the economy is expected to grow 6.5% this year. This is far ahead of the previous 4% forecast made in March.

What will be done to control inflation?

Many believe that the current shortage of HGV drivers is driving up inflation due to its impact on the supply chain. To address this, the Chancellor used his autumn budget to announce that HGV road user tariffs would be suspended until 2023. The tax was already suspended until August of the following year. It is hoped that the extension will encourage more drivers to work on British roads.

To further support drivers, the Chancellor has also announced the closure of vehicle excise duties for HGVs.

Excluding this support, the Chancellor did not disclose anything else about what his government would do to deal with rising prices. Many will be particularly disappointed that no announcement has been made to reduce VAT on fuel prices amid rising spending.

Nevertheless, many will find solace in the fact that the government has now acknowledged that inflation is a real problem.

What does rising inflation mean for savers and mortgage holders?

Rising inflation destroys the value of money. So if you are a saver who earns interest rates lower than inflation, your cash is effectively losing value. Nonetheless, many would expect that rising inflation would persuade banks to increase their savings rates to give savers some leeway. Yet there is no certainty. It may be difficult for savers to keep pace with inflation for the foreseeable future.

For homeowners, this is a different story. Those who have long-term fixed mortgage deals will not be immediately affected by rising inflation. However, those who have a short fix or standard variable rate (SVR) mortgage will face higher costs in the future. Because lenders will want to make sure their interest rate is more comfortable than the inflation rate.

For this reason, those looking for a mortgage may be willing to consider long-term deals because higher rates can be right around the corner.

Will the Bank of England eventually raise its base rate?

The biggest impact on rising prices is the Bank of England base rate, which currently sits at 0.1%. Many expect the base rate to rise at the bank’s monetary policy committee meeting in November.

In September, Bank of England Governor Andrew Bailey said the central bank needed to “take action” on rising inflation. However, it remains to be seen whether the base rate will increase this year.

Many critics believe that the bank has deliberately resisted the temptation to raise its base rate because about 25% of government debt is linked to inflation. As a result, the base rate increase will add billions to the public balance sheet.

Are you interested in learning more about the autumn budget? See our articles on changes to Air Passenger Duty, Universal Credit and Alcohol Duty.

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