The Bank of England is expected to raise interest rates by a quarter point to 4.75% on Thursday. There are growing calls for tougher action to tackle persistently high inflation. The inflation rate was stuck at 8.7% in May, according to worse-than-expected data. Core inflation, which excludes food and energy prices, reached 7.1%, the highest level since 1992. Some economists believe that the inflation numbers were so bad that the Bank of England could surprise analysts with a 0.5 percentage point hike in interest rates. Others predict that the Bank of England will stick to a lower increase, based on the lack of signals from the Bank itself.
With financial markets now expecting interest rates to reach 6% by the end of the year, there are concerns that mortgage payments will become increasingly costly. Ministers are bracing for a potential backlash among key Tory voters ahead of next year’s election. Prime Minister Rishi Sunak will emphasize the need to tackle inflation, stating that any delay will only worsen the problem. He asserts that halving inflation this year and returning to the 2% target is the government’s number one priority.
According to a survey by debt relief charity, StepChange, nearly half of all mortgage holders have struggled to pay bills and repay debts in recent months. In response to this growing mortgage misery, the Labour party is calling on the government to require lenders to offer support to struggling borrowers. The support could come in the form of extending the term of a mortgage loan or allowing temporary interest-only payments. However, the Tories argue that banks are already required to engage with customers facing repayment difficulties under a scheme monitored by the Financial Conduct Authority.
After the release of the inflation figures, achieving the Prime Minister’s pledge to halve inflation has become more challenging. To bring inflation down to 5.8% in the fourth quarter, the monthly rate would need to decrease from 0.7% in May to 0.3% over the next six months. Virgin Money, TSB, and NatWest have already announced higher interest rates on fixed-rate transactions following the inflation announcement. Average rates on two-year fixed rates reached a high of 6.15%.
Chancellor Jeremy Hunt has met with MoneySavingExpert founder Martin Lewis to discuss rising mortgage rates. Lewis has described the situation as a “ticking time bomb” that has now “exploded”. The combination of high inflation, rising interest rates, and the cost of servicing public debt has undermined Hunt’s plans to contest the 2024 election through deep cuts in government taxes.
On another note, thefts from stores, including meat, alcohol, and confectionery, reached 1.1 million incidents last year, according to new data from the Association of Convenience Stores.
Additional Piece:
The Impact of Rising Interest Rates on Consumers and the Economy
As the Bank of England contemplates raising interest rates to tackle high inflation, consumers and the broader economy brace themselves for potential challenges. While increasing interest rates can help curb inflation and stabilize the economy, it also has implications for individuals and businesses.
1. Impact on Borrowers: One of the main groups affected by rising interest rates is borrowers, especially those with variable-rate mortgages. As interest rates increase, monthly mortgage payments also rise. This can put a strain on households that are already struggling to make ends meet. For some borrowers, the higher payments may lead to financial difficulties and potential defaults on their mortgages.
2. Housing Market Slowdown: Higher interest rates can lead to a slowdown in the housing market. Affordability becomes a concern as mortgage rates increase, making it harder for potential buyers to qualify for loans or afford higher monthly payments. This can result in decreased housing demand and a potential decline in property prices.
3. Impact on Consumer Spending: Rising interest rates can also have an impact on consumer spending. As the cost of borrowing increases, individuals may be less inclined to take on new debt or make large purchases, such as cars or appliances. This decrease in consumer spending can have broader implications for the overall economy, as consumer spending is a key driver of economic growth.
4. Savers Benefit: On the flip side, rising interest rates can be beneficial for savers. It provides an opportunity for higher returns on savings accounts, certificates of deposit (CDs), and other fixed-income investments. For individuals who have been saving diligently, this can be seen as a positive change, as they can earn higher interest on their hard-earned savings.
5. Impact on Businesses: Rising interest rates can also have implications for businesses. The cost of borrowing increases, making it more expensive for businesses to invest in expansion or new projects. This can lead to a slowdown in business investment and potentially impact job creation. Additionally, higher borrowing costs may lead to reduced profitability for companies that heavily rely on debt financing.
In conclusion, while the Bank of England’s decision to raise interest rates aims to tackle high inflation, it is important to consider the potential impacts on individuals, businesses, and the overall economy. The increased cost of borrowing may put pressure on borrowers, slow down the housing market, and impact consumer spending. However, higher interest rates can be advantageous for savers. It is crucial for policymakers to carefully consider the consequences and balance the need for tackling inflation with supporting economic growth and stability.
Summary:
The Bank of England is expected to raise interest rates to 4.75% to address persistently high inflation. However, economists are divided on whether the increase will be a quarter or half a point. Higher interest rates may lead to increased mortgage payments and potential difficulties for borrowers. There are concerns about the impact on the housing market, consumer spending, and businesses. The rise in interest rates may benefit savers but could hinder business investment. It is important to carefully consider the implications of higher interest rates on individuals and the broader economy.
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The Bank of England is expected to raise interest rates by a quarter point to 4.75% on Thursday, with growing calls for tougher action to tackle persistently high inflation.
Big title inflation stuck at 8.7% in Mayaccording to worse-than-expected data on Wednesday, with core inflation – which excludes volatility in food and energy prices – reaching 7.1%, the highest level since 1992.
Some economists said the inflation numbers were so bad that the BoE could surprise with a 0.5 percentage point hike in its midday announcement or signal a big move ahead at the next Finance Committee meeting. monetary policy in August.
Allan Monks, UK economist at JPMorgan, said the two inflation figures since the last BoE meeting left him “feeling[ing] strongly that the MPC should act forcefully increasing by 0.5 percentage points this week”.
But he said the MPC would likely stick to a lower increase, “purely on the basis that the BoE has provided no signal of intensification, no forward guidance on the matter.”
With financial markets now expecting interest rates to reach 6% by the end of the year, drive up the cost of mortgage paymentsministers are bracing for a backlash among key Tory voters ahead of next year’s election.
Prime Minister Rishi Sunak will say on Thursday that he feels “a deep moral responsibility” to tackle inflation, arguing that any delay in fixing the problem will make matters worse.
“That’s why our number one priority is to halve inflation this year and get back to the 2% target,” he will say. “And I’m absolutely convinced that if we hold our nerve, we can do it.”
Nearly half of all mortgage holders said they had struggled to pay bills and repay debts in recent months, according to a survey by debt relief charity, StepChange, carried out ahead of the latest mortgage rate concerns.
In response to growing mortgage misery for households coming to the end of fixed-rate deals, Labor on Wednesday night called on the government to require lenders to help struggling borrowers.
This support could, for example, take the form of extending the term of a mortgage loan or allowing them to temporarily switch to paying interest only.
The Tories argue that banks are already required to engage with customers who are struggling to repay their home loans under a scheme monitored by the Financial Conduct Authority.
After Wednesday’s figures, the Prime Minister January pledge to halve inflation has become more difficult to achieve. Successfully bringing inflation down to 5.8% in the fourth quarter would require bringing the monthly rate down from 0.7% in May to 0.3% over the next six months.
Virgin Money, TSB and NatWest were among mortgage lenders to announce higher interest rates on fixed-rate transactions on Wednesday.
Average rates on two-year fixed rates hit 6.15% just before the inflation announcement, from 5.98% on Friday, according to financial site Moneyfacts.
Meanwhile, Chancellor Jeremy Hunt met with MoneySavingExpert founder Martin Lewis to discuss rising mortgage rates. Lewis said this week that the “ticking time bomb” he warned of had now “exploded”.
The combination of stubbornly high inflation, rising interest rates and the rising cost of servicing public debt has undermined Hunt’s hopes of contesting the 2024 election through deep cuts in government debt. taxes.
In the meantime, theft of meat, alcohol and confectionery of stores last year peaked at 1.1 million incidents, according to new data Thursday from the Association of Convenience Stores.
https://www.ft.com/content/9659ecf6-0b9e-4a8e-a391-4f0eff57f637
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