Over the past year and a half, the central bank has pushed through a dramatic tightening policy to curb the economy, raising interest rates from near zero from December 2021. But as UK inflation figures continue to surprise policymakers and other economists, traders say the central bank will need to raise interest rates for a longer period to bring inflation down to its 2% target. I expect. Before the policy decision was announced, traders expected rates to reach 6% by early next year.
Sustained price pressure in the UK has raised expectations that banks will need to raise interest rates further, causing turmoil in the mortgage market. Traders are pushing yields higher on expectations that the Bank of England will continue to raise rates. Mortgage offers reflect those rising interest rates, making homeowners increasingly concerned about skyrocketing monthly payments. Recently, some financial institutions have suspended mortgage transactions in response to rapid market changes.
The central bank said on Thursday that it was closely monitoring the impact of a “substantial” interest rate hike, saying that as more people take out fixed-term mortgages, the full impact of the rate hike is “not expected for some.” You won’t feel it,” he said. time. “
The Bank of England said last month it would encourage resetting the interest rate applied to loans, with about 1.3 million households expected to reach the end of their fixed-rate period by the end of the year. For the average mortgage holder in this group, a 3 percentage point increase in mortgage rates would result in an increase in monthly interest payments of about £200 ($255) a month, or £2,400 over the course of a year. Mortgage rates last suggested). The moon, said the bank.
Since then, interest rates have risen further. Over the weekend, the average two-year fixed-rate mortgage rate hit 6% for the first time this year.
As inflation has outpaced wages over the past year and a half, the additional economic burden on mortgage payers has exacerbated a deep-rooted cost-of-living crisis. A survey by the Office for National Statistics found that about two-thirds of UK adults said their cost of living increased in June compared to a month ago, almost all because of higher grocery shopping costs. replied.
Two members of the nine-member committee, Swati Dingra and Silvana Tenreiro, said the bank was at risk of policy tightening as the effects of past rate hikes were still felt across the economy. and voted to keep interest rates unchanged at 4.5%. more than necessary. He also said there are forward-looking indicators that suggest inflation and wage growth will slow significantly.
