One of the Bank of England's MPC members, Catherine Mann, says the UK has a bigger inflation problem than the US or the eurozone. That’s not great news considering she’s the keenest advocate for interest rate rises.
When inflation is high, central banks debate and then vote on interest rate rises as a solution to slow down demand for borrowing. The BoE has raised rates 12 times since December 2021, taking them to 5% in June 2023.
The continual base rate rises haven’t stopped inflation speed-rolling yet
Mann questions whether households were able to absorb price and interest rate rises because of savings squirrelled away during the 2021 Covid lockdowns. That along with businesses’ abilities to also absorb rate rises are two of the reasons she gives for continuing inflation problems.
She added, "The metaphor that is appropriate here ... is: 'The water is calmest before the falls.’"
Does Mann know something the rest of us don’t? The eerie prediction comes after the
British consumer price inflation hit a 41-year high of 11.1% in October. In April, at 8.7%, it was the joint highest alongside Italy.
Supply of labour and Brexit to blame for inflation?
Speaking on BBC Radio 4 on the 1st of June, 2023, former US Treasury Secretary Larry Summers said, “Brexit will be remembered as a historic economic error that reduced the competitiveness of the UK economy, put downward pressure on the pound and upward pressure on prices and limited in some ways the supply of labour. All of which contributed to higher inflation.”
Is it just all too easy to blame Brexit? While it contributed toward price pressures by limiting imported goods, other factors affected the economy. Lockdowns, global oil and gas supply issues and the war in Russia and Ukraine have all left their mark on the UK.
Goldman Sachs forecast that UK’s 2% inflation target won’t be met for another 3 years
Whatever the reason behind inflation rising so fast, the result is that interest rates are likely to increase further as a result.
Raising the cost of borrowing is one way that central banks decrease demand for finance in a bid to slow down inflation growth.
Markets expect interest rates to increase to 5.5%
Industry experts predict further hikes and MPC members like Andrew Bailey state they (the BoE) “will respond if there are signs of persistently strong inflation pressure.”
In an interview with Sky News in May, Chancellor Jeremy Hunt commented that he is "comfortable with the Bank of England doing whatever it takes to bring down inflation, even if that potentially would precipitate a recession".
The Bank of England's base rate is expected to reach 5.5% by November and remain elevated until February 2024.
What will happen to people on tracker mortgages?
Interest rate rises have a great financial impact on people with tracker or variable-rate mortgages.
If your mortgage has a rate that follows the BoE’s base rate, you may have already experienced several increases in your mortgage payments.
The last change to the bank rate to 4.5% from 4.25% meant that those on a typical tracker mortgage paid about £24 more a month than before. Those on standard variable rate mortgages faced a £15 jump.
That’s far from convenient and you may want to seek advice from a mortgage broker just in case there’s a lower or more reliable rate elsewhere.
What if my mortgage rate is fixed?
You should still seek advice and compare the other options that could be available to you. If you’re approaching the end of your fixed term, that’s an even greater reason to start looking now.
You may have been on a fixed rate for 2,3, or even 5 years. Now that rates are higher, you might be surprised by the jump in your mortgage payments if you stay with your current agreement and roll onto your lender’s standard variable rate. That’s the higher rate charged once your lower, fixed-rate period finishes.
Give yourself 6 months before your rate ends
That should give you enough time to compare the market (ideally with a mortgage broker), check your eligibility and get your application submitted.
If you find a better deal on another fixed-rate agreement, great - but look at the variable-rate agreements too. There are thousands of mortgage products which are all different available in the UK. It can be a lot to wade through, especially if you’re stretched for time and need to switch soon.
Find out what’s available, check your eligibility and cost it out with a broker
It’s the clearest way to see the cheapest route and could save you money depending on your circumstances and what you’re looking for.
Interest rates aren’t the only factor that your broker will compare.
They’ll weigh up the pros and cons of different lenders and their agreements and can explain how you could be affected if you wanted to exit or repay your mortgage early too.
Having a broker manage your mortgage process means you have an expert to ensure all the relevant documentation is included in your application (if you remortgage).
They also look for errors that would otherwise cause delays, saving you time and the headache of a rejection.
The Mortgage Hut provide advice online and in person
Whether it’s WhatsApp that you’d like to use to talk about interest rates or a good old-fashioned phone call, we’re here when you need us with honest advice.
Our advisors are also contactable through this form and welcome people by appointment in our offices.
