![]() Suren Thiru, economist director at the Institute of Chartered Accountants in England and Wales, says the move may even turn out to be unnecessary, making this a needless recession. “It is increasingly difficult to see how the UK avoids a recession as part of the process of bringing inflation down,” he says, adding that this “large rate increase will probably be seen in retrospect as an important milestone towards that recession”. ![]() Luke Bartholomew, senior economist at Abrdn, says this rate rise means Britain is heading in the same direction. It would not take much to knock the UK into a recession, joining Germany and the eurozone which are already contracting. Employment is at a record high, yet output is barely budging. GDP grew by an underwhelming 0.1pc in the three months to April. Even before this latest rate rise, the economy was already effectively stagnating. Policymakers will need to balance this against the pain felt by renters, who have seen their costs rise sharply as landlords – many of whom have interest-only mortgages – hike rents to try to keep up with payments.Īll of this does not bode well for growth. What this suggests is that rates may need to be higher for longer in order for more people to feel the pain. The MPC repeated that the greater share of fixed-rate mortgages meant “the full impact of the increase in Bank Rate to date would not be felt for some time”. This means that many borrowers are shielded from the current increase in mortgage rates, although they face hefty increases in payments when their deals expire over the next few years. ![]() The Bank also has another hurdle, in that 85pc of households today have a fixed rate mortgage, compared with 50pc in 2008. It is very noticeable that Asian countries, which didn’t avail themselves of the magic money tree in the way that Western Europe and America did, have not got an inflation problem.” “There has to be a moment when the scales fall off your eyes about the magic money tree that started in the pandemic,” says one senior source. But government sources indicate that those expecting a bailout this time will be sorely disappointed. Handouts are almost seen as a given, with speculation that Rishi Sunak will once again ride to the rescue and provide relief to struggling borrowers. ![]()
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