- Mortgage costs rise
- Wealthy benefit, poor struggle
- Uncertain 2024 outlook
A think tank argues that a “mixed picture” of declining inflation, interest rate reductions, and tax changes will benefit the wealthiest half of Britons in 2024, while the poor will still feel income pressure.
In the next 12 months, an average of £1,800 will be added to the annual bills of 1.5 million mortgage holders, warns the Resolution Foundation. Also, the poorest 50 percent of households will no longer receive cost-of-living assistance and may face higher tax liabilities.
Moreover, amid preparations for general elections in Britain in 2024, the organization predicts that households will be poorer at the conclusion of the parliament than at its beginning.
Mortgage rate adjustments due to Bank of England base rate increases dominated the news in 2023 as pressure on businesses and households increased.
However, the centre-left think tank, in a report published today, calculated that households were better off in 2023 due to higher interest rates.
Interest Rate Impact on UK Households’ Finances
The report states, “Since the Bank of England began raising interest rates, annualized real income from savings interest for British households as a whole has increased by £35 billion, more than double the £16 billion increase in debt interest costs.”
This net interest income increase of £19 billion represents 1% of households’ disposable income, an extraordinary and unparalleled occurrence in recent UK rate-hiking cycles.
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The Resolution Foundation cautions, however, that “the opposite will be true in 2024” due to the failure of interest rate reductions to mitigate “significant hits to housing costs.”
The UK base rate is presently 5.25%, with an anticipated reduction of 1.34 percentage points for the following year.
Although mortgage bill increases “won’t be as painful as they otherwise would have been,” the 1.5 million households scheduled to remortgage still face a substantial increase, according to the report.
As inflation moderates and the BoE ceases base rate increases, consumers continue to pay significantly more for some necessities.
According to a report by the Resolution Foundation, the mean yearly expenditure on food will persist at £1,000, and energy will cost £760 in 2024, both higher than pre-pandemic levels.
“Inflation continues to fall sharply, and wages remain stable,” the report notes, suggesting a more positive outlook if these trends persist.
