03 August 2023 , 20:37
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Millions of struggling households were dealt a fresh blow yesterday as the Bank of England hiked interest rates once again.
The 0.25% rise – its 14th in a row –takes them to a 15-year high of 5.25%. And it warned rates would remain “sufficiently restrictive for sufficiently long” to get inflation down from its current 7.9% to the Bank’s 2% target.
While predicting the UK will avoid recession – but only just – it downgraded its growth forecasts and predicted the economy would flatline over the next three years. Trying to justify the further hikes, Bank Governor Andrew Bailey said: “Inflation hits the least well off the hardest.”
Yesterday’s rise will add another £42 a month – £504 a year – to the repayments on a typical £250,000 standard variable rate mortgage. But savers will benefit, if providers pass the rise on. However, Chancellor Jeremy Hunt insisted: “If we stick to the plan, the Bank forecasts inflation will be below 3% in a year’s time.”
The Bank of England (Anadolu Agency via Getty Images)Q What’s the big takeaway from yesterday’s Bank of England meeting?
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A That rates might have to rise again (though that’s not certain), and stay high, unless inflation falls sharply. That means drawn out pain for millions.
QHow high could rates go?
A The Bank of England never says but financial markets cut expectations yesterday, pricing in a peak below 5.7% when it had been 5.8% or higher.
QWhy all the uncertainty?
A Because there are so many unknowns. Key will be July’s inflation number in a fortnight and where wage growth eases.
QWhat does all this mean for mortgage borrowers?
A The vast majority are on fixed rates and will be stung when they come off their cheap deal, if not already.
QHow about renters?
A Landlords with variable buy-to-let mortgage could pass the hike on. And with fierce competition for rented homes, tenants are in a tough place.
QAnd savers?
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A Under pressure, banks and building societies have jacked-up rates on accounts where you need to lock your money away, plus deals for current account and other existing customers. Rates on easy access accounts are still well below inflation.
We will make sure banks support mortgage holders, writes Shadow Chancellor RACHEL REEVES
This rise – a hammer blow for working people – did not have to happen. The Tories crashed the economy with last September’s disastrous mini-Budget and left you paying the price. They are out of touch, out of ideas and managing decline rather than getting us moving.
Labour will make sure the banks support mortgage holders. It will introduce a proper windfall tax on the oil and gas giants to ease the cost of living. And it will put in place a long-term plan to grow our economy. That includes investing in renewable industries to cut bills, create jobs and safeguard energy supplies.
It won’t be easy. The damage the Tories have done is immense. However, I know how much potential there is in Britain and together I know we can deliver it.