Afternoon summary
Time for a recap.
UK borrowers continue to be hit by rising interest rates as the fight against inflation continues, and there may be more pain ahead.
Average two-year mortgage rate have risen over their peak last autumn, averaging 6.66% today for the first time in 15 years.
MPs have heard that rising mortgage rates are causing financial stress to customers, and that the situation will worsen. However, lenders also reported that they have not seen a significant pick-up in arrears yet.
Bradley Fordham, mortgage director at Santander UK, told the Treasury Committee the bank had seen a “small tick up in arrears, still 20% below pre-pandemic, 70% below 2009 post-financial crisis, so relatively low levels”.
He said mortgage customers coming off deals and going onto new ones were seeing payment increases of “over £200 per month”.
But, the UK could be approaching a ‘tipping point’ where mortgage rates rise to levels where borrowers cannot fully protect themselves by extending the terms of their loans or moving to interest-only deals.
The International Monetary Fund warned that UK interest rates may need to keep rates higher for longer, to fight inflation.
The financial markets are anticipating that UK interest rates will hit 6% by November, up from 5% at present.
The latest labour market report has shown that UK wages increased at a faster rate than expected in May.
Earnings growth hit 7.3% in the three months to May compared with a year earlier, driven by the strongest rise in private sector pay growth outside the pandemic period of 7.7%, the Office for National Statistics said. It was the joint highest since modern records began in 2001.
And with unemployment rising, number of job vacancies down, jobs growth slowing and more people looking for work, there are signs that the UK labour market is starting to slow.
And in other news…
Britain’s debt-laden “zombie” companies are expected to be wiped out by the surge in interest rates, an insolvency specialist has predicted.
Britain’s retailers recorded a sharp rise in spending in June as hot weather prompted consumers to buy summer clothing and outdoor goods, despite growing pressure on budgets from the cost of living crisis.
Morrissey has written to Jet2holidays urging the tour operator to drop its association with marine parks that continue to use captive orcas and dolphins for entertainment.
Updated
Deutsche Bank have predicted that the Bank of England will lift interest rates by half a percentage point next month.
Previously, Deutsche had forecast a quarter-point rise, from 5% to 5.25%.
But following this morning’s strong labour market data, showing wage growth running at 7.3%, it has upped its forecasts for the next meeting of the BoE’s Monetary Policy Committee.
Deutsche’s chief UK economist, Sanjay Raja, explains:
For now, evidence of still more persistent wage pressures will keep the MPC’s foot on the accelerator. A second consecutive 50bps hike now looks more likely than not.
