Mortgage brokers have warned that the Bank of England (BoE) will have no choice but to make a much higher-than-anticipated increase to interest rates following today’s inflation figures.
Earlier this morning the Office for National Statistics (ONS) revealed that inflation had hit 10.1% in September, the highest level seen since the 1980’s.
Following the unwinding of Kwasi Kwarteng’s botched mini-Budget by new Chancellor Jeremy Hunt there had been a belief that interest rate rises may have been less severe than expected. This belief now appears to have evaporated.
Jonathan Burridge, founding adviser at We Are Money, said: “The equation is simple: inflation at such whopping levels means more base rate rises, more uncertainty and more people facing growing financial pressure.
“We need precision leadership, prudent fiscal policy and confidence to turn this around. We are lacking all of them. It is going to be a tough year ahead, particularly for borrowers.”
Dominik Lipnicki, director at Your Mortgage Decisions, agreed: “The higher than expected inflation figures spell more doom and gloom for borrowers, as the Bank of England is under even more pressure to increase their base rate when its Monetary Policy Committee meets on the 3rd of November.
“That said, there are no winners here as even savers are on a hiding to nothing given the level of inflation.”
Riz Malik, director at R3 Mortgages, warned that the pressure will be on for both borrowers and savers alike.
He said: “There’s no doubt at all now that interest rates will be raised much higher, potentially significantly, in November.
“The Bank of England has no choice with inflation where it is even though food and energy prices are major contributors.
“Borrowers are going to be put under immense pressure and savers’ returns are being eroded by double-digit inflation. Everyone is feeling the squeeze.”
While Lewis Shaw, founder and mortgage expert at Shaw Financial Services, concluded: “Inflation running at double figures is the one thing the Bank of England didn’t want to happen.
“This means more pain coming down the line. Market expectations are for the base rate to hit 5% by May next year. If that happens, we could see mortgages even higher than now. While fixed rates don’t correlate with bank rate, they tend not to be a million miles out.
“For savers, hopefully they’ll start to see some return for the first time in over a decade, however, the evil that is high inflation will still mean they’re losing purchasing power in real terms.
“We really need strong monetary policy to tame the inflationary beast, because it makes everyone poorer.”
