Bad weather and Rachel Reeves's tax rises have pushed up checkout prices (Image: Getty)
Checkout prices are set to soar after the Bank of England predicted inflation will rise to 4%, double the official target. The rising cost of food means shoppers are already abandoning famous brands in favour of cheaper own-label products in an attempt to save money, the Bank warned.
Tax rises introduced by Chancellor Rachel Reeves have contributed to price hikes according to the Bank of England’s Monetary Policy Committee, which announced it was cutting base interest rates from 4.25% to 4%. The change will mean lower mortgage payments for some homeowners. Bank Governor Andrew Bailey said: “Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully.”
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'Almost certain' good news coming today for anyone buying a home
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Martin Lewis tells anyone with savings to take action from Thursday
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In a report explaining the factors that led to the decision, the Bank issued a series of warnings about the state of the economy. It said inflation is set to peak at 4.0% in September before falling again, while the target rate is 2%.
But the cost of food had already risen by 4.5% over 12 months. The Bank said customers have responded by “trading down”, adding: “For example, sales of own-label items had increased at the expense of branded products.”
It continued: “Customers were also increasingly purchasing cheaper cuts of meat and buying food staples in larger value packs.”
Explaining the price rises, the Bank said they were partly down to increases in the National Minimum Wage and employer National Insurance contributions (NICs), introduced by the Chancellor in her Budget last year.
It said: “Only some of the costs associated with the employer NICs increase have so far been passed on to consumers, which has added around 1%–2% to food prices.”
Other factors pushing up the cost of food included dry weather, which meant there was less grass to feed cows, and drought in areas that produce coffee.
The interest rate cut comes after warnings from think tank the National Institute of Economic and Social Research that the Chancellor may need to find a further ￡40 billion through tax rises or spending cuts in her autumn Budget in order to balance the state finances.
However the Bank raised its economic growth forecast for this year, predicting that GDP (gross domestic product) will grow by 1.25% in 2025, up from its previous estimate of 1%.
The inflation reading for September could be influential as it is typically used to decide how much benefits increase the following year, and can influence increases in the state pension.
Ms Reeves said: “This fifth interest rate cut since the election is welcome news, helping bring down the cost of mortgages and loans for families and businesses.”
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Interest rates: Inflation to boom in latest blow to Rachel Reeves despite BoE cuts
British standard of living blow: Labour IS to blame says Bank of England
Bank of England base rate could plummet to 2.75%
Only one man can save Rachel Reeves now - and tomorrow he makes his move
I'm a property finance expert - here's what borrowers must do after interest rate drop
Four savings accounts guaranteed to beat the interest rate cut right now
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Nationwide Building Society to slash mortgage rates by 0.25%
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Four savings accounts guaranteed to beat the interest rate cut right now
Martin Lewis tells anyone with savings to take action from Thursday
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Nationwide Building Society to slash mortgage rates by 0.25%
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Bank offers 4.4% savings rate guaranteed to beat interest rate cut
Mortgage customers with Barclays, Nationwide and Lloyds see bills drop from September 1
'Next steps for anyone with a credit card' after interest rate cut
POLL: Should the Bank of England cut interest rates?
Rachel Reeves looks to Bank of England for help as unemployment rises and economy stalls
'Almost certain' good news coming today for anyone buying a home
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Rachel Reeves abandoned as BoE ducks big rate decision - now she's doomed
Chase Bank cuts rate for savings from next Thursday in message to customers
Interest rates: Inflation to boom in latest blow to Rachel Reeves despite BoE cuts
British standard of living blow: Labour IS to blame says Bank of England
Bank of England base rate could plummet to 2.75%
Only one man can save Rachel Reeves now - and tomorrow he makes his move
I'm a property finance expert - here's what borrowers must do after interest rate drop
Four savings accounts guaranteed to beat the interest rate cut right now
Martin Lewis tells anyone with savings to take action from Thursday
Sir Mel Stride MP, Shadow Chancellor of the Exchequer, said: “Rachel Reeves claims credit for interest rate cuts - but rates are coming down to support the weak economy she has created. Inflation has almost doubled on her watch and unemployment is rising.”
Referring to the National Insurance increase, he said: “Interest rates should be falling faster, but Labour’s jobs tax and reckless borrowing have pushed inflation well above target.”
Cuts in the base rate are likely to lead to banks and building societies cutting mortgageinterest rates, leading to lower payments for homeowners on tracker mortgages. It means people on fixed rate mortgages that are up for renewal soon will be offered lower rates than if they had renewed 12 months ago, but anyone who took out a fixed rate 5-year mortgage in 2020 is still likely to find their payments increase.
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