The latest episode of MPowered Mortgage’s podcast, The Rate Stuff, took a deep dive into the Spring Statement, offering key insights into how the latest economic forecasts will impact the mortgage market.
Hosts Jack Izzard and Peter Stimson dissected the numbers, raising concerns about slowing growth, stubborn inflation, and the implications for interest rates and mortgage pricing.
While the Spring Statement did not introduce major policy shifts, it did deliver significant economic forecasts from the Office for Budget Responsibility (OBR).
Stimson noted: “On the face of it, it seemed fairly banal.
“But when you look at some of the numbers below the surface, there are quite a few little red flags.”
Among the most concerning projections was GDP growth.
The OBR had forecasted 2% growth for 2025 back in October, but that figure has since been halved to just 1%.
“We are slowing badly,” said Izzard.
Stimson pointed to a combination of factors, including a slowdown in hiring, looming tariffs, such as a 25% tariff on steel and aluminum, and the upcoming increase in National Insurance costs.
While the OBR does predict GDP growth to recover to 1.9% in 2025, Stimson remained skeptical.
He said: “Without being disrespectful to the OBR, I think the 1.9% at the moment is a little bit nefarious.
“It’s a little bit ‘suck it and see’ at this stage.”
Beyond growth concerns, inflation remains a major challenge.
The OBR forecasts inflation will average 3.2% through 2025 before dropping to 2.1% in 2026.
Stimson explained that inflationary pressures are set to peak in the coming months, fuelled by rising energy costs, wage increases, and the impact of higher National Insurance contributions.
However, he expects inflation to ease in the latter half of 2024.
Stimson also noted that the swaps market is currently pricing in two Bank of England rate cuts this year, although one may slip into early 2026.
“Markets are often as wrong as they are right,” he cautioned, explaining that any shift in inflation trends or economic performance could change expectations.
“If we get any signs that inflation is leveling off, the Bank may well decide that it’s got some opportunity to cut.”
Despite slow base rate reductions, lenders are already cutting mortgage rates aggressively.
“You’ve got one or two lenders pricing at or below swap,” Stimson explained.
“Typically, lenders price 20 to 30 basis points above swaps for margin, but right now, some are just five to 10 basis points above.”
While this is good news for borrowers, Stimson questioned whether such pricing strategies are sustainable.
He added: “Three to six months out, are lenders going to be pricing from that level of margin? I personally doubt it.”
The Spring Statement also reiterated the Government’s housing plans, including commitments to build 18,000 new social homes.
Additionally, £600 million has been allocated to training 60,000 skilled construction workers to address the housing shortage.
While these measures align with Labour’s pledge to be “the party of builders, not blockers,” Stimson noted that the scale of the housing crisis is immense.
He said: “By any real measure, we’re about three million homes short of where we need to be.
“It’s taken 20 years to get into this mess, it may take a similar time to get out.”
Funding constraints also limit the Government’s ability to take bold action.
Stimson noted: “They can’t raise taxation because it’s not politically acceptable to do. They can’t really borrow any more money because the markets will find that very unpalatable.”
Izzard summed up the Government’s position succinctly.
He concluded: “It’s almost like the government is feeling the same pain as the average mortgage borrower.
“Money is tight. The cost of borrowing is a lot higher than it was.”
