UK interest rates to rise again causing mortgage pain for millions as Sunak struggles to control inflation
Britain is headed for another rise in interest rates after inflation remained in double digits – threatening Rishi Sunak‘s pledge to cut it in half this year.
The Bank of England is likely to push rates up to 4.5 per cent next month, according to multiple economists, in an attempt to bring inflation under control.
While the headline rate of annual inflation fell slightly from 10.4 to 10.1 per cent in March, according to the Office for National Statistics (ONS), “core” consumer price inflation – which strips out the most volatile items such as food and energy – has not reduced.
Chancellor, Jeremy Hunt, is understood to fear that domestically generated inflation is higher than expected even as global factors, including international gas prices, have started to ease.
He said in response to the ONS data: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.”
The Office for Budget Responsibility (OBR) has forecast that inflation will fall below 3 per cent by the end of this year. But Harriett Baldwin, Chair of the Treasury Select Committee, predicted it could stay higher than that. She told TalkTV: “I think we are going to see inflation come down to 5 per cent from 10 per cent.”
Ed Monk, of investment firm Fidelity, said: “It’s now clear the UK has an inflation problem that is worse and more persistent than in Europe and the US. Price rises here are proving more difficult to neutralise and the Bank of England will almost certainly add at least one more quarter-point hike to borrowing costs. There has to be a question as to whether it feels that will be sufficient. The Government promise to halve inflation, and the OBR forecast of it hitting 2.9 per cent by the year’s end, both look a long way off.”
And Jonathan Rolande, of the National Association of Property Buyers, added: “There is now a strong chance of a further interest rate rise in May.” Julian Jessop, from the free-market Institute of Economic Affairs, said a rate hike looked “inevitable” but added: “It need not be like this. A more credible central bank would be able to look forward, rather than back, and keep interest rates on hold.”
A single quarter-point rise in interest rates, currently at 4.25 per cent, would push up the cost of servicing the average mortgage by nearly £300 a year, according to UK Finance calculations.
Inflation is set to fall from next month as the leap in energy prices which happened last April drops out of the rolling 12-month data, but wage growth continues to lag far behind price rises, and food is almost 20 per cent more expensive than it was a year ago.
Shadow Chancellor, Rachel Reeves, said: “The question for families remains as real as ever – when will they feel better off under this Conservative Government? The reality is that under the Tories our economy is weaker, prices are out of control and never have people paid so much to get so little in return.”
