UK mortgage holders and renters hit hardest by inflation

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Britons with mortgages and renters have been hit by higher inflation than other groups in society, underscoring the uneven impact of the surge in living costs and the challenge facing the government to help struggling households.

Household costs for those with mortgages rose at annual rate of 3.7 per cent in the 12 months to June, the Office for National Statistics said on Wednesday.

The figure was down from 4.1 per cent in May but still the highest of any UK socio-economic group. It was also well above the 2.5 per cent rate across the general population and compared with headline inflation of 2 per cent in June.

Households in private rental accommodation saw costs increase at an annual rate of 3.2 per cent in the same period, according to the ONS. By contrast, costs for people who owned their property outright rose 1.3 per cent, the lowest of any group calculated by the statistics agency. 

The figures point to the challenges facing Sir Keir Starmer to deliver his promise of a “decade of national renewal” and leave behind the cost of living crisis of the past three years.

Ministers are meeting energy company executives on Wednesday to discuss plans for the winter and are separately set to extend a critical hardship fund to help struggling households in England, according to Whitehall officials.

But the prime minister on Tuesday gave his strongest signal yet that taxes would rise in the Autumn Budget, warning that the fiscal event was “going to be painful” and that he would have to make “big asks” of the public.

The ONS data offers a closer measure of households’ experience of living costs than the headline inflation index. This is because the figures are based on how much different types of households spend on goods and services, rather than the fixed basket used to measure headline price growth.

They also take into account the costs incurred by households from changes in mortgage interest rates, stamp duty and other spending related to the purchase of a dwelling, which are not included in the headline rate.

Mortgage costs have surged since the end of 2021 after the Bank of England raised interest rates from an all-time low of 0.1 per cent to a 16-year high of 5.25 per cent last summer in a bid to tame high inflation.

In August, the BoE cut its benchmark rate to 5 per cent for the first time since Covid-19 struck, and financial markets expect another reduction in November.

Tomasz Wieladek, chief European economist at the investment company T Rowe Price, said the ONS data showed the BoE’s monetary policy stance was squeezing household disposable income, with effects “not picked up in consumer price inflation”.

Landlords with mortgages passing higher borrowing costs on to tenants contributed to the higher inflation rate for renters compared with the general population. A lack of properties is also pushing up rents, which are still rising at near-record rates.

But in a sign of an easing in the cost of living, the 2.5 per cent reading for annual growth in household costs marked a steep slowdown from a peak of 12.7 per cent in October 2022.

Energy and food costs have fallen since Russia’s full-scale invasion of Ukraine in February 2022 led them to surge, and industry data showed shop prices entered deflation for the first time in almost three years this month.

The impact of the swings in energy costs was reflected in the inflation rate experienced by retired people, who spend a bigger share of their income on gas and electricity bills.

Annual inflation for retired households stood at 1.2 per cent in June, down from 1.4 per cent in May and a peak of 14.3 per cent in October 2022.

High mortgage costs and falling energy prices also widened the gap in inflation rates between richer and poorer households.

The richest 10 per cent of the population faced an inflation rate of 3.3 per cent in the year to June, while costs for the poorest 10 per cent rose by 1.7 per cent, the ONS said.