The Bank of England on Thursday lifted its key rate by a half-point to 5 per cent in the 13th increase in a row, driving up the cost of home loans from commercial lenders and pressuring Britons already buckling under surging food and fuel prices.
The BoE is seeking to tackle stubbornly high inflation but has sparked fresh mortgage misery, with Britons increasingly at risk of falling into arrears.
The mortgage crisis has also piled pressure on Prime Minister Rishi Sunak, as his Conservatives attempt to win back ground from the main opposition Labour party before next year’s general election.
Official data this week showed UK annual inflation at 8.7 per cent in May, unchanged from April, causing the BoE to hike by a larger than expected amount.
Economists are predicting rates could hit six percent this year, which could see the UK follow the eurozone into recession.
Sunak has vowed to halve Britain’s inflation rate by the end of the year but it remains one of the highest in the G7.
“Tackling high inflation is the prime minister and my number-one priority,” added Hunt.
“We are absolutely committed to supporting the BoE to do what it takes. We know the pressure that families are feeling.”
“WEAK RESPONSE”
Labour finance spokeswoman Rachel Reeves blasted the measures as a “weak response on a mortgage crisis they created”.
“Instead of shrugging their shoulders, the Tories should be taking responsibility and acting now,” she added on Friday.
Consumer champion Martin Lewis, who met Hunt earlier this week and warned that the “ticking time bomb” of mortgages was now “exploding”, said he was “pleased to see it looks like the Chancellor has listened” to his concerns.
Markets are predicting a further rise in the BoE’s key interest rate – which is used to set commercial mortgage rates – to 6 per cent by year-end.
UK banks mostly offer mortgages with a fixed interest rate for a set period – typically two to five years – but after expiry this becomes variable or a new rate is set in line with prevailing market conditions.
Some 1.4 million mortgage holders whose deals are expiring now face losing at least a fifth of their disposable income in additional payments.
They are set to rise by £2,900 (us$3,681) for the average household remortgaging next year, according to economists at the Resolution Foundation think-tank.
More than 80 per cent of homeowners with a mortgage are on fixed-rate deals, according to trade body UK Finance.
But some 2.4 million of those deals are to expire before the end of 2024.
Source: CNA
