Governor says UK economy will be in recession all of next year and first half of 2024
The Bank of England has today raised the base interest rate 0.75% to 3% to curb spiralling inflation, which hit 10.1% year-on-year in September.
Rising mortgage rates were expected to 鈥渨eigh on household spending for sometime鈥�, the monetary policy report said.
Although, it added the 鈥渟harp tightening in mortgage availability seen during late September is not assumed to persist over the forecast period鈥� and said there had been 鈥渕oderate falls in some mortgage rates in the days leading up to [today]鈥�.
But the UK economy is expected to remain in recession throughout next year and the first half of 2024, the bank warned, as prices for energy, food and other bills continue to rise.
鈥淚nflation is too high. It is well above our 2% target,鈥� the monetary policy committee wrote in its report. 鈥淩aising interest rates is the best way we have to bring inflation down.鈥�
The committee鈥檚 central projection is for GDP growth to be -1.5% in 2023 and -1% in 2025. The bank expects GDP growth to go up around .75% in 2025 but it will 鈥渞emain well below pre-pandemic rates鈥�.
Tim Bannister, Rightmove鈥檚 director of data services, said: 鈥淭he era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.鈥�
Richard Donnell, executive director of Research at Zoopla said the markets has been expecting a jump in the base rate.
鈥滿ost borrowers use fixed-rate loans so it鈥檚 the cost of 2 and 5 year fixed rate money for banks that underpins mortgage rates more than the base rate. Today鈥檚 jump does not worsen the outlook for mortgage borrowers but home buyers need to realise that 4-5% mortgages are set to be the norm in future, not the 1-2% of recent years.鈥�
>>See also: Can housing associations keep building as the rest of the market slows?
The chancellor Jeremy Hunt reacted saying: 鈥淪ound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.鈥�
Housebuilders share prices dropped today in anticipation of the base rate rise. Estate agent Savills predicted house prices would drop by 10% next year with mortgage rates increasing and the worsening cost of living crisis.
The base rate will next be reviewed on 15 December.
No comments yet