Interest rates set for horror rise to 7 per cent
Mortgage interest rates are expected to experience a horrifying increase to 7 percent, according to new research.
JP Morgan suggests that the Bank of England could raise interest rates in order to break the cycle of persistent inflation.
It is anticipated that the UK’s interest rates may increase to as high as 7 percent in an effort to scare the government into making adjustments that will slow down runaway inflation.
If the Bank of England took this action, it may perhaps assist cut inflation; however, it would also increase the likelihood of a recession and produce instability in the mortgage market.
Allan Monks, an economist at J.P. Morgan, stated that the bank’s primary estimate anticipated the base rate, which has lately surpassed 5%, to reach its highest point of 5.75% in the month of November.
Nevertheless, Monks is of the opinion that the Bank of England will not stop there in the event that it is determined that inflation has become “entrenched,” because “households keep pushing for higher wages and firms seek to protect their profit margins.”
When Sunak made his promise to cut inflation in half by the end of 2023, the Consumer Price Index (CPI) was at 10.1 percent.
This figure stayed stable at 8.7 percent through the month of May in 2023, which was the same as it was in April.
Economists are concerned about persistently high core inflation, which has increased to 7.1 percent, the most annual rate increase since March 1992. While inflation for food has decreased slightly, but it is still high at 18.3 percent, this is the biggest annual rate increase since March 1992.
Lenders are continuing to remove their most affordable packages and reprice their offers in order to account for the fact that robust demand is maintaining the market and the Bank of England base rate increases are not showing any signs of abating.
The current average price for a two-year fixed rate mortgage has skyrocketed to 6.4%, and there are no two-year fixes available with rates lower than 5%.
When interest rates were previously this high, on the eve of the financial crisis, around half of mortgages were set at fixed rates, which meant that half of homeowners would instantly feel the pain.
Today, just 15 percent of mortgages have variable rates, which means that the vast majority are protected from additional costs in the near future. However, the costs of remortgaging a property in 2024 are expected to increase for the 800,000 people who are already planning to do so.
According to Ying Tan, the new CEO of whole-of-market mortgage brokers Habito (subject to clearance by the FCA), speaking to GB News, Ying Tan said, “I urge the Bank of England to take a momentary pause in their rate hikes and allow the previous 12 months of continuous increase to take effect before deciding their next action.” This statement is subject to FCA approval.
Sir Howard Davies, chairman of NatWest and a former deputy governor at the Bank of England, suggested that the Bank of England ‘wait a while’ for the impact of its most recent interest rate increase, which was implemented at the end of March.
Sir Howard stated the following in an interview with Radio 4: “In the past, when we’ve had major rises in interest rates – instance, before the most recent financial crisis – the mortgage market in this country was predominantly variable rate.
According to the Office for National Statistics (ONS), economic growth in the first quarter of 2023 was a meagre 0.1 percent, despite the fact that the United Kingdom has managed to avoid entering a recession so far.
The Organisation for Economic Cooperation and Development (OECD) forecasts that the annual increase in GDP will be a meagre 0.3% in 2023.
While the GDP in the UK in the first quarter was 0.5% lower than its level before the epidemic, the GDP in the Eurozone was 2.2% higher than its level before the pandemic.
The Office for National Statistics (ONS) has announced that the total net debt held by the United Kingdom as of the end of May has reached £2.6trillion. This amount is equivalent to an estimated 100.1% of the overall gross domestic product (GDP) held by the United Kingdom.
Since March of 1961, this marks the first time the debt-to-GDP ratio has ever been higher than 100 percent.