Not yet, according to Chancellor Jeremy Hunt. He’s seen Treasury figures suggesting that inflation will climb above seven percent when August’s figure is published on September 18, up from July’s 6.8 percent. If correct, that will be a huge blow.
The BoE is so convinced inflation remains a live threat that it’s set to hike base rates for the 15th time in a row to 5.5 percent at its next meeting on September 21.
That’s yet more bad news for a million homeowners whose fixed-rate mortgages will expire this year. They face paying an extra £500 a month on average.
New figures suggest 50,000 homeowners are already in negative equity, where their property is worth less than they paid for it.
Mortgage arrears and repossessions are rising too.
We all suffer at the hands of high inflation, every time we hit the shops, with food prices soaring 14.8 percent in the year to July.
Petrol’s getting more expensive, as Saudi Arabia slashes production to pump up oil prices. Our winter fuel bills may remain shockingly high, too.
So there are good reasons to cross our fingers and hope that if inflation does rebound in September, it will prove short-lived.
The only beneficiaries from higher interest rates are savers, who have been getting a decent return on their money at long last.
National Savings & Investments now pays a thumping 6.20 percent a year on its one-year fixed-rate bond.
That’s an outlier, though. Otherwise, best buy savings rates have barely moved in the last six weeks. I see this as a sign that banks and building societies do not expect base rates to go much higher.
Best buy two-year fixed-rate bonds have steadied at 6.05 percent, paid by Close Brothers and Ford Money.
The best buy five-year fixed-rate has crept up, but only from 5.80 percent to 5.85 percent, offered by Tandem via savings platform Raisin UK.
Banks are wary of committing to high fixed-rate savings products as they suspect inflation and interest rates may soon be much lower than today.
And here’s another sign that bank rate may have peaked. Incredibly, mortgage rates continue to fall.
First Direct is the latest to cut lending rates. Halifax, Nationwide and HSBC have also been cutting in recent weeks.
I’ve seen reports that lenders will launch five-year fixed rate mortgages at less than five percent. Which is a strange thing to do if they expect base rates to keep climbing.
Higher interest rates are finally doing the dirty work of crushing the life out of the UK economy.
Last month, a closely watched survey called the UK’s purchasing managers’ index (PMI) showed business activity shrank by the most since January 2021, when Britain was still in a coronavirus lockdown.
Activity is shrinking and this could tip the UK into recession.
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We will be joined there by the eurozone and possibly even the US, according to consultancy Capital Economics.
We’ve all seen how weak the property market is, with house prices falling at the fastest rate in 14 years. The jobless rate is now rising.
Accountancy group PwC predicts inflation will average just 3.4 percent next year. By the end of 2024 it will be down to two percent, in line with the BoE’s target. In 2025, PwC expects inflation of 1.7 percent.
If correct, the BoE should start slashing interest rates early next year.
Personally, I think it should hold bank rate at 5.25 percent this month, but even if it doesn’t, there’s a chance September’s hike will be the last.
That seems to be what the banks are betting, anyway. Let’s hope they’re right (savers are free to take a different view).
