Mortgage costs are rising after higher than expected inflation figures this week raised forecasts of how much UK interest rates will go up. A range of lenders have increased the cost of new deals, with Nationwide the most significant with increases of up to 0.45 percentage points on Friday.
It comes amid expectations the Bank of England will have to raise interest rates higher than previously thought. Yet the activity is far less frenzied than after last year’s mini-budget.
Official figures showed UK inflation in April slowed by less than expected to 8.7%, with core inflation, which strips out volatile factors such as food and energy, at a 31-year high. That led to a strong reaction in the markets, with the last few days described as “pretty tumultuous” by Luke Hickmore, investment director of fixed income at Abrdn.
The reason for that is that markets now think the Bank of England will have to raise rates above their current level of 4.5% to as high as 5.5%.
“The inflation number was a real surprise, it stayed high and sticky and that’s really worried investors,” Mr Hickmore told the BBC’s Today programme. “It will affect mortgage and borrowing rates over the next year or two.”
Robert, a teacher from Hertfordshire, told the BBC he and his wife are facing an increase of £500 on their mortgage payments on their family home.
Chancellor Jeremy Hunt said he backed an increase in interest rates if it curbed higher prices and soaring inflation, even if it risked pushing the UK into a recession.
Speaking to Sky News, Mr Hunt insisted the “only path to sustainable growth” was to bring down the high prices behind the cost of living crisis.
When asked if he was comfortable with the Bank acting to bring down inflation even if it led to a recession, Mr Hunt said: “Yes, because in the end inflation is a source of instability.
Rising prices have been driven, in part, by higher food bills.
But speaking to the BBC, the boss of Sainsbury’s, Simon Roberts, said supermarkets had not been using high rates of inflation as a cover for making higher profits. Supermarkets saw higher sales as part of a rebound in overall retail sales in April. Official figures from the Office for National Statistics showed that sales volumes rose 0.5% last month, after activity in March was hit by wet weather.