British mortgage holders and renters most affected by inflation

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Britons with mortgages and renters are affected by higher inflation than other social groups, highlighting the uneven impact of rising living costs and the challenge for the government to help struggling households.

Household costs for mortgage borrowers rose by 3.7 percent annually in the 12 months to June, the national statistics office said on Wednesday.

While the figure was lower than in May (4.1 percent), it was still the highest of any socioeconomic group in the UK. It was also well above the rate of 2.5 percent for the general population and compared to the headline inflation rate of 2 percent in June.

According to the ONS, the cost of private rented accommodation rose by 3.2 percent annually over the same period. In contrast, costs for people who owned their property outright rose by 1.3 percent, the lowest of all the groups calculated by the statistics office.

The figures highlight the challenges Sir Keir Starmer faces if he is to deliver on his promise of a “decade of national renewal” and put the cost of living crisis of the past three years behind him.

Whitehall officials said ministers will meet with energy company executives on Wednesday to discuss winter plans and to boost a vital emergency fund to help struggling households in England.

But the Prime Minister gave his clearest signal yet on Tuesday that taxes would rise in the autumn budget, warning that the budget decision would be “painful” and that he would have to place “great expectations” on the population.

The ONS data provides a more accurate measure of household living costs than the inflation index. This is because the figures are based on how much different types of household spend on goods and services, rather than the fixed basket of goods used to measure price growth.

They also take into account the costs to households of changes in mortgage interest rates, stamp duty and other expenses associated with purchasing a home that are not included in the overall interest rate.

Mortgage costs have jumped since late 2021 after the Bank of England raised interest rates from an all-time low of 0.1 percent to a 16-year high of 5.25 percent last summer in an attempt to curb high inflation.

In August, the BoE cut its key interest rate to 5 percent for the first time since the Covid-19 outbreak, and financial markets expect a further cut in November.

Tomasz Wieladek, chief European economist at investment firm T Rowe Price, said the ONS data showed that the BoE's monetary policy stance was depressing households' disposable income without these effects “being reflected in consumer price inflation”.

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

However, in a sign of an easing in the cost of living, the 2.5 percent figure for annual household cost growth marked a sharp decline from the peak of 12.7 percent in October 2022.

Energy and food costs have fallen since Russia's large-scale invasion of Ukraine caused them to jump in February 2022. Industry data showed that retail prices slipped into deflation this month for the first time in nearly three years.

The impact of fluctuations in energy costs was reflected in the rate of inflation experienced by pensioners, who spend a larger proportion of their income on gas and electricity bills.

The annual inflation rate for pensioner households was 1.2 percent in June, down from 1.4 percent in May and a peak of 14.3 percent 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 percent of the population faced inflation of 3.3 percent in the period to June, while costs for the poorest 10 percent rose by 1.7 percent, the ONS said.