The Consumer Prices Index (CPI) measure of inflation was at its highest level it has been for over a year in April, rising to 3.5 per cent although this was revised down slightly to 3.4 per cent later.
Some economists thought that May’s figure would be a little lower whilst others expected it to be slightly higher, but the consensus is it will remain well above 3 per cent.
Paul Dales of Capital Economics expects the figure to be between 3 and 3.5 per cent for the rest of the year.
Robert Wood, chief UK economist at Pantheon Macroeconomics, said: “Events in the Middle East driving up oil prices last week are a reminder of just how close to the wind the MPC is sailing.
What does it mean for interest rates?
Higher inflation means prices are rising quickly and this can prompt the Bank to keep interest rates higher for longer.
It is widely expected that it will stay the same at 4.25 per cent, especially as high inflation and volatile oil prices continue to have an impact.
Mortgages are not directly affected by inflation, although many products are affected by the Bank’s base rate, which inflation influences.
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Read MoreFixed mortgages tend to follow swap rates, which work on long-term predictions for where the base rate will go.
Currently, the average two year fixed rate is 5.12 per cent and the average five year is 5.1 per cent, according to Moneyfacts.
High inflation is bad news for savers as it erodes the value of money held in the bank. Therefore, the lower the rate, the better the news for savers.
Experts believe we are “past the peak” for savings, though there are some high rates that can still be snapped up.
Atom Bank offers a savings account paying 4.75 per cent, although this has limited withdrawals.
Higher inflation can eat into pensioners’ savings.
But in real terms, it would be worth exactly the same as it is today, because inflation has eaten away at the potential growth.
Annuities offer a guaranteed annual income in retirement. They offer an alternative to drawing down money from a pension pot, which could eventually run out, particularly if a retiree lives longer than expected.
But for retirees opting for one, time may be of the essence. With the Bank expected to cut interest rates further, rates may fall.
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