Millions of Britons’ finances could take another hit if the bank announces its biggest hike in interest rates since 1995.
Nine members of the Monetary Policy Committee will be voting on whether to increase the bank’s base rate by 0.25 per cent or 0.5 per cent. Either way, mortgage borrowing would be made more expensive.
It comes as economists fear a recession caused by “stagflation” – sluggish growth, high unemployment, and inflation.
The Resolution Foundation think tank has warned that next year inflation could reach an “astronomical” record-high of 15 per cent – the highest level since 1980.
This will see prices for essentials increase much faster than wages, while the UK faces a winter of yet more record highs in gas and electricity prices fuelled by Russia’s invasion of Ukraine.
Low to middle-income families are likely to face disproportionately higher living cost levels for the foreseeable future, the think tank said.
More than half a million homeowners in south east face ‘mortgage ticking time bomb’
More than half a million homeowners in London and the south east face a “mortgage ticking time bomb”, new analysis revealed.
With the City widely expecting a historic half a percentage point rise in interest rates by the Bank of England’s Monetary Policy Committee (MPC) on Thursday, 565,000 people in the capital and surrounding region face paying hundreds of pounds more each month as cheaper fixed-rate deals expire.
Successive increases to the Bank of England’s base rate since February mean that the typical mortgage holder on a tracker rate is already paying an additional £104 a month — or £1,248 a year —and they will see an immediate increase in payments from a further rise.
The repayment figures compiled by the Liberal Democrats were based on data from the trade body UK Finance and were calculated using a typical fixed average mortgage balance of more than £160,000 outstanding.
Thomas Kingsley4 August 2022 09:34
Bank of England ‘very worried’ recession looming, experts say
Torsten Bell, chief executive of living standards at think tank the Resolution Foundation, said he would be surprised to see more 0.5 per cent increases in interest rates after today as the Bank of England is “very worried” that a recession is looming.
Speaking to BBC Radio 4’s Today programme about what the Bank of England can do in the circumstances, he said: “There’s obviously lots of different shocks happening at once here to our economy and to inflation.
“Some of those wider shocks are easing and that’s to do with global supply chains and due to the spikes in global commodity prices that I was just mentioning, but others are getting worse and that’s to do with the Russian war and what that’s done to energy prices.
“That isn’t going to go away and interest rate rises are only relevant to that insofar as they prevent that becoming embedded in our wage setting processes in the months and years ahead. They can’t do anything about that actual rise in energy prices.
Mr Bell added: “I think there is pressure from the global situation for people to put up interest rates by large amounts. We may see one rise of half a percentage point today.
“I’ll be surprised if we see several months of that because actually, if you look at what the Bank of England have been saying to us, they’re also very worried about the state of the economy – that there may be a recession looming. We may get a forecast of recession in the updated forecast from … the Bank of England later today.”
Thomas Kingsley4 August 2022 09:16
Sunak and Truss clash over tax plans ahead of debate
Rishi Sunak launched a fresh attack on Liz Truss’s plans for tax cuts ahead of the pair’s next debate in their quest to become prime minister.
The former chancellor said his foreign secretary rival in the Tory leadership race would further drive up interest rates, raising mortgage payments, with her plans.
His warning came as the Bank of England was forecast to raise interest rates to the highest level in nearly three decades on Thursday, from 1.25 per cent to 1.75 per cent.
The former chancellor stressed there are “crucial differences” between their plans “because timing is everything”.
“If we rush through premature tax cuts before we have gripped inflation all we are doing is giving with one hand and then taking away with the other,” he said in a statement.
“That would stoke inflation and drive up interest rates, adding to people’s mortgage payments. And it would mean every pound people get back in their pockets is nothing more than a down payment on rising prices.”
Their latest head-to-head will take place on Sky News.
Thomas Kingsley4 August 2022 08:53
Situation ‘deeply worrying’ for many people, Ofgem chief says
Ofgem chief executive Jonathan Brearley said: “I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.
“We will keep working closely with the government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”
Thomas Kingsley4 August 2022 08:35
Bank of England ‘too slow’ to raise interest rates
Attorney General Suella Braverman said the Bank of England has been “too slow” to raise interest rates and claimed Liz Truss would review if the bank’s current arrangement is “fit for purpose” if she becomes prime minister next month.
“Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard,” Ms Braverman said.
She added: “Liz Truss has made clear that she wants to review the mandate that the Bank of England has, so that’s going to be looking in detail at exactly what the Bank of England does and see whether it’s actually fit for purpose in terms of its entire exclusionary independence over interest rates.”
Ms Braverman rejected criticism that Ms Truss’s tax-cutting plans would further drive up inflation.
“People say ‘we can’t afford to cut taxes’, Liz thinks – and I agree with her – that we can’t afford not to cut taxes,” she said.
Thomas Kingsley4 August 2022 08:11
NEW: Ofgem confirm price cap will be updated every three months
Ofgem has confirmed that the energy price cap will be updated quarterly, rather than every six months, as it warned that customers face a “very challenging winter ahead”.
The regulator said the change to when the energy price cap is updated “will go some way to provide the stability needed in the energy market, reducing the risk of further large-scale supplier failures which cause huge disruption and push up costs for consumers,” adding: “It is not in anyone’s interests for more suppliers to fail and exit the market.”
It said that although Britain only imported a small amount of Russian gas, as a result of Russia’s actions, the volatility in the global energy market experienced last winter had lasted much longer, with much higher prices for both gas and electricity than ever before.
As expected, Ofgem also warned that as a result of the market conditions, the price cap would have to rise to reflect increased costs.
The next price cap level will be published at the end of August.
Thomas Kingsley4 August 2022 08:03
Rolls-Royce warns inflation pressures will continue into 2023
Engine maker Rolls-Royce has said pressures from soaring inflation amid the Ukraine war and supply chain woes are set to continue throughout next year, but said profitability should improve over the final months of 2022.
The group saw underlying operating profits more than halve to £125 million for the first six months of 2022, down from £307 million a year ago.
It said operating margins had been squeezed in the first half, while it said the “external environment remains challenging, with the war in Ukraine, inflationary pressures, and supply chain constraints all impacting our business”.
It added: “We expect these issues will persist into 2023 and have been managing our business to address and minimise the impact.”
But the group said margins are set to improve over the second half of the year as it kept its full-year guidance unchanged, with a boost from the recovery in the airline sector and higher flight demand.
Rolls chief executive Warren East said: “We are actively managing the impacts of a number of challenges, including rising inflation and ongoing supply chain disruption, with a sharper focus on pricing, productivity and costs.”
Sam Rkaina4 August 2022 07:46
Two thirds of Britons worried about rising interest rates
Almost two-thirds of the public say they are concerned about rising interest rates as the Bank of England considers another hike in the cost of borrowing.
The Bank is expected to announce its largest interest rate rise in almost 30 years at midday on Thursday as the UK faces soaring inflation.
In a poll published by Ipsos on Thursday morning, 64% of people said they were fairly or very concerned about the prospect of rising interest rates – a figure that rose to 80% among those aged 18 to 34.
Some 67% said they were worried about the value of their savings, while concern about energy bills and the rising cost of living in general reached 75% and 89% respectively.
Gideon Skinner, head of political research at Ipsos in the UK, said: “We know that concern about the cost of living and inflation is at the top of the public’s agenda, with the proportion saying it is an important issue facing the country at a 40-year high in Ipsos’ long-term trends.
“And this particularly manifests itself in concerns about energy and utility bills and in the value of people’s savings.
“But with the Bank of England stating they need to put up interest rates to help bring inflation down, there is concern about the impact of higher interest rates too – which suggests exploring additional solutions to help people who are facing financial difficulties will be high on the public’s wish-list for the new prime minister’s government.”
Sam Rkaina4 August 2022 07:22
Good morning. Welcome to The Independent’s liveblog on the Bank of England’s increase in interest rates.
Lamiat Sabin4 August 2022 07:00