Martin Lewis shares ‘one good bit of news’ out of mortgage rates crisis
Inflation unexpectedly remained frozen last month on 8.7 per cent, piling further pressure on the Bank of England to raise interest rates in a further blow to those with mortgages.
Following two consecutive months of falls, rising prices remained steady in April and May and above what economists had earlier predicted.
Soaring prices for plane tickets, recreational and cultural goods and services and second-hand cars added the most to inflation, the Office for National Statistics said. Costs for motor fuel fell, they added, putting the biggest downward pressures on inflation.
The frozen inflation rate means the Bank of England will now almost certainly hike interest rates when officials meet tomorrow..
Chancellor Jeremy Hunt said: “We know how much high inflation hurts families and businesses across the country, and our plan to halve the rate this year is the best way we can keep costs and interest rates down.
“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy while also providing targeted support with the cost of living.”
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Starmer attacks Sunak over ‘mortgages catastrophe’
Labour leader Sir Keir Starmer has attacked Tory policies as to blame for the “mortgage catastrophe”, as he confronted Rishi Sunak at PMQs.
In a reference to Mr Sunak’s absence over the vote to condemn Boris Johnson, Sir Keir told the Commons: “I realise the prime minister spent all week saying he doesn’t want to influence anyone or anything. He is certainly keeping to that with his answer.
“He knows very well the cause of the mortgage catastrophe – 13 years of economic failure and a Tory kamikaze budget which crashed the economy and put mortgages through the roof.
“So, will the prime minister tell us how much the Tory mortgage penalty is going to cost the average homeowner?”
Mr Sunak replied: “The honourable gentleman isn’t aware of the global macroeconomic situation.”
He added: “We have deliberately and proactively increased the generosity of our support for the mortgage interest scheme, we have also established a new FCA (Financial Conduct Authority) … duty which will protect people with mortgages, for example moving them onto interest-only mortgages or lengthening mortgage terms.
“We have spent tens of billions of pounds supporting people with the cost of living, particularly the most vulnerable.”
Andy Gregory21 June 2023 12:31
Watch: Hunt vows to follow Tory plan to battle inflation ‘no matter the pressure’
Jeremy Hunt vows to follow Tory plan to battle inflation ‘no matter the pressure’
Andy Gregory21 June 2023 12:22
Government borrowing could overshoot OBR forecasts by £20bn, claims analyst
Expectations of higher interest rates could see government borrowing overshoot the Office for Budget Responsibility’s forecasts by as much as £20bn, one analyst has warned.
In remarks after the cost of government borrowing on two-year gilts hit a new 15-year high, chief economic adviser to the EY Item Club, Martin Beck, said: “At the next fiscal event in the autumn, the official forecaster will likely deem the government in breach of its fiscal rules based on current policy.
“The chancellor would likely respond by adding more post-election spending cuts on top of a spending squeeze that already looks challenging. So the true medium-term path for fiscal policy is unlikely to emerge until the first Budget after the election.”
Andy Gregory21 June 2023 12:10
Bank of England will be cagier about future rates than last November, says analyst
Bank of England officials “will be reluctant to offer any firm guidance” on future rates in case of “further inflation surprises”, one analyst has suggested.
ING developed markets economist James Smith said: “It’s another month where UK inflation has come in dramatically higher than expected and that all but guarantees another rate hike from the Bank of England tomorrow.
“When rates got this high last November, the Bank of England offered some rare pushback against market expectations and signalled a lower peak for rates.
“This time, with inflation consistently coming in hotter than expected, we suspect officials will be more reluctant to offer any firm guidance on what comes next.
“Policymakers won’t want to steer market rate expectations lower, only to find that further inflation surprises force it to go further than it would like over the coming months.”
Andy Gregory21 June 2023 11:54
Average house prices in April were £9,000 higher than previous year, ONS finds
Annual house price growth is running at around one quarter of the rate seen last summer, according to the Office for National Statistics.
At £286,000, the average UK house price in April this year was £7,000 below a recent peak in September 2022, with house prices having increased by 3.5 per cent on average in the 12 months to April, according to the ONS – down from a peak of 14.2 per cent in July 2022.
Volatility in the figures for 2021 and 2022 reflects house price movements around changes in stamp duty in 2021, the ONS said.
The annual increase in property values also slowed in April compared with the previous month, when a 4.1 per cent rise was recorded. The average UK house price in April 2023 was £9,000 higher than 12 months earlier.
Andy Gregory21 June 2023 11:13
‘Shock-and-awe 0.5% rise’ cannot be ruled out, says analyst
A “shock-and-awe” rise of 0.5 per cent in the Bank of England’s base rate tomorrow cannot be ruled out, an analyst has warned, with markets as of this morning viewing such a move as more likely than a smaller increase of 0.25 (see post at 9:05am).
Rob Morgan, chief investment analyst at Charles Stanley, said: “With prices showing little response to the Bank of England’s twelve successive interest rate rises, today’s figures seal a further increase in interest rates at the Monetary Policy Committee’s next meeting tomorrow from the current level of 4.5 per cent.
“An increase to 4.75 per cent is all but nailed on, but a shock-and-awe rise of 0.5 per cent to 5 per cent cannot be ruled out. The Bank of England will likely maintain tight policy for the remainder of the year, meaning further interest rate rises and no significant rate cuts until 2024.”
Andy Gregory21 June 2023 10:47
Average mortgage rates continue to rise
Mortgage rates have continued to rise today, figures suggest, even without this morning’s gloomy expectations of a further rise in the Bank of England’s base rate.
According to figures from Moneyfactscompare.co.uk released on Wednesday, the average two-year fixed residential mortgage rate is 6.15 per cent and the average five-year fixed residential mortgage rate is 5.79 per cent.
There were 4,498 residential mortgage products available on Wednesday. This is down from a total of 4,641 on Tuesday, Moneyfacts said.
Here was the outlook from mortgage brokers on Monday, when the average rate of a two-year fix was at 6.01 per cent:
Andy Gregory21 June 2023 10:23
Watch: Government ‘sticking to its guns’, says Jeremy Hunt despite frozen inflation
Government ‘sticking to its guns’, says Jeremy Hunt despite frozen inflation
Andy Gregory21 June 2023 10:20
Interest owed on government debt in May was £700m above watchdog’s forecast
This morning’s ONS figures also revealed that the interest payable on central government debt was £7.7bn in May – which is £200m less than a year ago, but £700m more than forecast by the Office for Budget Responsibility (OBR).
Borrowing in the first two months of the financial year so far has already reached £42.9bn – £19.6bn more than in the same two-month period a year ago and £2.1bn higher than the £40.8bn predicted by the OBR.
But the ONS said it has revised down its estimate for borrowing in the previous financial year to March 2023 by £3 billion to £134.1bn. This is still £11.8bn more than in 2021-22 and remains the fourth highest borrowing figure since monthly records began.
You can read more details here:
Andy Gregory21 June 2023 10:10
UK debt exceeds 100% of GDP for first time since 1961
The UK’s debt pile reached more than 100 per cent of economic output for the first time since 1961 as government borrowing more than doubled in May, this morning’s figures suggest.
The Office for National Statistics said net debt reached £2.6 trillion as of the end of May, estimated at 100.1 per cent of GDP, having shot up from around 84 per cent as the government responded to the coronavirus pandemic in March 2020.
Samuel Tombs, of the Pantheon Macroeconomics consultancy suggests that “pre-election tax cuts no longer look feasible”.
Andy Gregory21 June 2023 10:05