Ads
More than three million homeowners face higher mortgage payments this year due to rate hikes, with the average fixed rate expected to rise by almost £200 a month.
The Bank of England is widely expected to hike interest rates by as much as half a percentage point to 1.5% on Thursday – up from just 0.1% last year.
But Rishi Sunak and Boris Johnson are not planning any targeted support for borrowers in the coming months. According to allies, the Chancellor is prepared for a few “tough” months, but is optimistic about the prospects for an economic recovery from the autumn.
On Thursday, the bank’s Monetary Policy Committee will announce whether it will raise interest rates above their current level of 1 percent.
Analysts say it is almost certain that rates will rise by at least 0.25 percentage point, with an unusual 0.5 point hike also considered plausible.
According to UK Finance, 1.3 million fixed rate mortgage deals will eventually come to an end this year, forcing borrowers to refinance at a higher rate. There are also nearly 1.9 million people on an adjustable-rate or tracker mortgage, which automatically moves according to interest rates.
With interest rates at 1.5 per cent, the average fixed rate borrower will have to pay around an extra £190 a month to service their mortgage, UK Finance has calculated.
A spokesman for the Prime Minister said: “While a large proportion of people have fixed-rate mortgages, for those who don’t have them or who are expiring, the sharp rise in interest rates poses a challenge, as they do for the Government, and the Chancellor has made that very clear did.
“I’m not aware of any specific policy targeting those whose mortgages are maturing during this period, but there is broad public support to ensure there is more money in people’s pockets from July.
“We make sure there is the right level of support, but no government could allocate funds to meet all the challenges that we are seeing because of these global pressures.”
Jobs data showed that the average worker’s income fell 4.5 percent in real terms in April on rising inflation, although unemployment remains near record lows.
London stock markets fell again after a week of sustained declines fueled by investor concerns over the possibility of a looming global recession. The purchasing power of the pound collapsed to its lowest level since the pandemic began.
Conservative critics and free-market think tanks have urged the chancellor to push ahead with policies designed to boost long-term economic growth.
Mr. Sunak has secretly resigned himself to a few more months of bad economic news, but is cautiously optimistic that he can present a rosier picture by the next autumn budget. A Treasury Department source said: “Things are obviously going to be difficult over the next few months but we are confident that we will be fine and things will get easier and better.”
According to No. 10, the introduction of further stimulus in the short term would carry the risk of prolonging the currently high level of inflation. A spokesman said: “While unable to provide definitive figures at this stage, the general consensus is that inflation will peak at some point in the short to medium term and obviously the government is trying to ensure that conditions are such that we can’t do anything do to change that.”
Figures from the Office for National Statistics show a sharp fall in real wages, despite the fact that April saw another 90,000 workers join the company payroll and unemployment was just 3.8 percent.
Mr Sunak said: “Today’s statistics show that our labor market remains resilient with layoffs at an all-time low. Helping people find jobs is the best way to provide long-term support for families, and we continue to help people find new and better jobs.
“We are also providing emergency relief as prices rise – eight million of the most vulnerable families will receive direct payments of at least £1,200 this year, with all families receiving £400.”
The government on Tuesday approved a further £18million as part of its cost-of-living plan.
Education Minister Nadhim Zahawi said: “We are increasing our funding for universal free school meals for young children because we know more can be done as costs rise.”
However, Liberal Democrat MP Munira Wilson said I: “Today’s announcement is a sign that this government realizes the terrible record it has on free school meals. Too many children are starving under their care.”
Former Brexit Secretary Lord Frost, a senior figure on the Tory right, suggested Mr Sunak had damaged the party’s reputation by repeatedly raising taxes in the wake of the Covid-19 crisis.
He said conservative house: “The problem is that in many ways the damage is being done in the sense that we have now shown the world that we are willing to increase taxes. You can’t put that genie back in the bottle.”
The TaxPayers’ Alliance has called for a range of free market measures that would boost GDP by £56 billion by the end of this decade, including returning the VAT rate to 17.5 per cent, scrapping health and social security contributions and reducing the property tax rate.
Chief Executive John O’Connell said: “If things are as bad as economic indicators are saying, now is the time for Boris to be bold.”
Ads
–
