Bank of England pressure mounts as mortgage crisis deepens

Pressure on the Bank of England continues to mount from a broadening range of sources, as the central bank raised interest rates by 0.5 per cent to five per cent - fuelling the escalating mortgage crisis in an attempt to dampen the embedded cost of living crisis.
Prime Minister Rishi Sunak speaking to members of staff at a PM Connect event at the IKEA distribution centre in Dartford, Kent.Prime Minister Rishi Sunak speaking to members of staff at a PM Connect event at the IKEA distribution centre in Dartford, Kent.
Prime Minister Rishi Sunak speaking to members of staff at a PM Connect event at the IKEA distribution centre in Dartford, Kent.
Kit Sandeman
By Kit Sandeman
Published 23rd Jun 2023, 06:00 BST

The rise - the 13th in a row - was the sharpest hike since February, with many analysts predicting a 0.25 per cent rise.

Yet despite the consecutive rises, there appears little consensus that the medicine is working.

This week, while the headline inflation rate remained stable, at 7.9 per cent, core inflation - the long-term trend once items like food and energy are factored out - continued to rise, meaning any respite may be fleeting.

This was also despite this month’s figures being a comparison against this time last year, several months after Russia’s invasion of Ukraine, when inflation rates had already begun to rise sharply.

Moreover, with no high street savings account offering anywhere near the central bank’s rate, there are concerns potential benefits of increasing the attractiveness of saving are not being actualised, meaning the harm could be outweighing the benefits.

Following yesterday’s rise, with financial markets now predicting that interest rates will peak at six per cent before the year is out, analysts warned 1.4 million mortgage holders will lose at least a fifth of their disposable income in additional repayments.

While the primary implications of the rate rise are economic, the political ramifications of soaring mortgage costs for middle-earning families are not lost on Westminster.

Grumblings from Tory backbenchers about the Bank of England’s monetary approach persist, while the eye-watering mortgage rate hikes make easy political goals for the opposition.

Ahead of the Chancellor meeting banking leaders today, Labour repeated its call for targeted action, stopping short of mortgage subsidies.

Shadow Chancellor Rachel Reeves said: “There are people who are particularly impacted, who are really struggling, through no fault of their own, with those higher mortgage payments.

“We do have a huge inflation problem in the UK and lots of untargeted fiscal support from the Government is not the right response when we need to tackle inflation.”

But the Government backed the bank, saying the approach would get down inflation, which was a more important issue than mortgage rates.

The Prime Minister said yesterday: “The reason interest rates are going up is because inflation is too high and we’ve got to bring it down.

“This is something that makes everybody poorer, that’s what inflation does.

“That’s why we’ve got to grip it, we’ve got to reduce it and interest rates are a part of that.”