Homeowners have been warned things could get even worse as the Bank of England said it could not rule out further interest rate rises in a bid to bring down rampant inflation. Families already crippled by soaring food and energy prices were yesterday dealt another blow with mortgage repayments rising due to another rate hike, the Mirror reports.
Bank of England Governor Andrew Bailey insisted the punishing wave of prices of goods has peaked and will 'fall sharply' when figures for April are released later this month. But despite the optimistic outlook, it did not stop the Bank voting to jack up interest rates from 4.25% to 4.5% – the highest since the 2008 financial crisis and the 12th in a row – sparking fury. Financial markets expect the rises to hit 5% by the end of the summer.
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Mr Bailey, who earned nearly £600,000 last year, said it was 'too soon to say' if the Bank will announce more rate rises. Flanked by colleague Katie Martin, he added: “It’s our job to get inflation back down to the 2% target and to stay there. We’ll make whatever decisions are needed to ensure that happens.”
Mr Bailey also insisted if the Bank does not raise interest rates thing would be 'much worse'. The interest blow comes after former PM Liz Truss's disastrous mini-Budget last September triggered a spike in the cost of new fixed rate mortgages due to her unfunded tax cuts for the rich.
Angry homeowners told on radio shows yesterday of their anguish caused by the latest interest rate rise. On LBC, caller Rachel in Bristol said: “I haven’t lived at my home since I was 25, I’m now 43 this year and I’m actually going to be selling my house and moving back in with my parents.
“The best idea for us is if I move in with them, and we all pay a mortgage.”
Mum Jennifer from the Isle of Man told BBC 5 Live her and her partner’s monthly payments have gone from £725 a month to £1,120. She added: “I’m going to have to go back to work earlier than I wanted to, because maternity pay will not cut it.”
TUC general secretary Paul Nowak said: “With the UK economy flatlining, and the value of everyone’s pay plummeting, another rate rise will make a bad situation worse.”
Unite general secretary Sharon Graham added: “Every time interest rates rise the banks make bonanza profits, now in the billions. Meanwhile businesses, mortgage holders and renters pay the price. This medicine is killing the patient.”
Shadow Chancellor Rachel Reeves said: “The Prime Minister should take his fingers out of his ears and admit his personal responsibility for a Tory mortgage crisis leaving so many worse off. He trapped us in a cycle of low growth and high taxes, while tickling the tummies of unfunded, trickle down tax extremists in his party.”
The Bank yesterday conceded that only a third of the impact of previous rate hikes have been felt by households in mortgage and other borrowing costs. One of the reasons is that around 85% of borrowers are on fixed rate deals, so are shielded from the impact. But millions of other households are on variable rate repayments or have come off fixed rate deals and need to remortgage, sending payments soaring.
The Consumer Prices Index measure of inflation is currently running at 10.2% – five times the Bank’s 2% target. Prices are expected to fall at a slower rate than the Bank forecast in February. CPI is now predicted to still be 3.4% by next spring, more than three times the 1% predicted before.
That is mostly due to rocketing food prices, which have leapt by around a fifth in the past year and has surprised even Mr Bailey in terms of how long they have stayed high. The Bank revised up its forecasts for the UK economy, predicting the country will avoid recession. It now expects output to be flat this year and would have grown slightly without the impact of strikes and the King’s Coronation.
Chancellor Jeremy Hunt said: “Although it is good news the Bank of England is no longer forecasting recession, today’s interest rate rise will obviously be very disappointing for families with mortgages.
“But unless we tackle rising prices, the cost of living crisis will only carry on, which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year."
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