- Bank of England maintains high interest rates.
- UK’s economic growth expectations lowered.
- Housing market faces mortgage challenges.
In the meantime, with interest rates remaining high, the Bank of England has predicted that the United Kingdom’s economy will experience zero growth until 2025.
This came as the Bank kept interest rates at 5.25 percent, the highest level in fifteen years, for the second consecutive time.
Rishi Sunak pledged to boost the UK’s GDP by the end of the year, but revised projections cast doubt on this claim.
Inflation and Economic Outlook
The head of the bank, Andrew Bailey, stated that it was “far too early to consider rate cuts” despite the gloomy outlook.
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Nevertheless, the bank anticipates a significant decline in inflation, or the rate of price increases, over the next few months.
This puts the prime minister’s pledge to reduce inflation by half to approximately 5% by the end of the year on track.
The Bank of England had increased interest rates fourteen times in succession before September in an effort to curb soaring inflation that had been putting pressure on households.
It has resulted in higher savings rates and mortgage payment increases, which have strained borrowers.
“We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target,” according to Bailey.
Impact of Rising Mortgage Rates
“We’ll be watching closely to see if further rate increases are needed.”
The prevailing inflation rate during the period ending in September was 6.7%.
As rising energy and food costs abate, the Bank anticipates that it will further decline and projects that it will hover around 3% for the duration of the following year, surpassing its target.
Although the Bank does not forecast a recession, it does anticipate negative growth from now until 2025, including the entire year of 2020, when a general election is likely to occur.
UK economic expansion is decelerating,” stated the Bank.
Hunt has assured that he will take steps to stimulate growth in the United Kingdom when he presents the government’s Autumn Statement later this month, detailing the strategies to boost the economy.
We will increase economic growth by releasing private investment, re-engaging more Britons in the workforce, and delivering a more productive British state, as detailed in the Autumn Statement.
However, Labour claimed that thirteen years of “economic failure” have left working people worse off. Whereas the Liberal Democrats referred to the interest rate decision as “cold comfort for millions of hardworking families.”
Impact of Rising Mortgage Rates
“The purchase of our first home seems ever more distant.”
Mortgage interest rates have skyrocketed since the Bank of England increased interest rates. Those who are remortgaging, first-time purchasers, or those on variable or tracker deals have been impacted.
The mean interest rate on a five-year, fixed-rate residential mortgage in the United Kingdom is 5.87%, a marginal decrease from levels observed earlier this year but still elevated in comparison to a few years ago.
Ebony Cropper and her fiancé are accumulating funds for a down payment on a primary residence. They reside in Warrington. However, despite their diligent budgeting, their monthly rent increased by an additional £45 in August, further complicating matters.
She stated, “We got engaged this year, but I believe [the wedding] must be postponed because it’s such a big expense for just one day, and purchasing a house is more important.”
At this moment, it feels somewhat futile because your objective [of home ownership] is fading away.
