On Thursday 22nd June 2023, defying market predictions, the Bank of England put up interest rates by a full half percentage point, to 5%, the highest level since 2008. Both the Prime Minister Rishi Sunak and the Chancellor of the Exchequer Jeremy Hunt backed the Bank of England to the hilt, confirming Andrew Bailey’s (Governor of the BOE) uncompromising attack on inflation.
Apparently recent data showed that there were stronger inflationary pressures on the UK economy, thus the Bank of England’s Monetary Policy Committee (MPC) voted seven to two to increase interest rates by 0.5%. The Bank of England is committed to their policy of reducing interest rates to 2% by raising interest rates 13 times since December 2021.
The Bank of England’s expectation that inflation would fall in May failed to materialise with inflation staying at 8.7% well beyond and above the intended target of 2%. Many experts and analysts are suggesting that the rate rises are doing more harm than good and figures confirm that inflation in the UK is the highest of any G7 country.
Such interest rate increases have pushed lenders to reprice their “Fixed Rate” mortgage deals pushing up prices whilst at the same time putting increased pressure on homeowners, which may result in a swathe of repossessions. The Chancellor, having already announced there will be no help for homeowners, did a u-turn on Friday and announced an agreement with lenders where homeowners struggling with repayments would be given a 12 month grace period before any repossessions take place. This agreement encompasses mortgage holders extending their current agreement or moving to an interest only plan.
Due to interest rate increases, the circa two million mortgage holders on tracker rates have seen their monthly outgoings rise every six weeks since December 2021. UK data shows that there are six million households tied to fixed rate mortgages with 800,000 due at the end of the year 2023. We can only hope the Government’s and the Bank of England’s monetary policies can finally start to eat away at inflation avoiding a mortgage time bomb at the end of 2024.