Mortgage borrowers face further cost of living pressure as interest rates are set to rise Business News

The Bank of England is set to raise interest rates to their highest level in 13 years as it seeks to rein in the rising cost of living.

Its Monetary Policy Committee (MPC) meets on Thursday to make its final rate decision amid runaway inflation fueled by soaring energy costs. Consumer price inflation is expected to hit 9% later this year, with some analysts predicting it could reach double digits.

Economists expect the MPC to hike rates from 0.75% to 1% on Thursday – a level not seen since the aftermath of the 2009 financial crisis.

Until recently, the consensus was that a rise to 1.25% was likely, but a set of increasingly alarming economic indicators tipped the scales towards a more cautious approach.

As Governor Andrew Bailey warned, the Bank must walk a “very narrow line” between cooling inflation and triggering a recession.

Consumer confidence plunged last month as retail sales lagged expectations as shoppers curbed spending amid growing fears over soaring energy bills, food prices and fuel costs. fuel.

Rishi Sunak has so far rejected calls to offer targeted financial support to struggling families – a move that would in part help boost consumer confidence.

The chancellor has so far opted to stick to previously announced plans for council tax refunds and a loan to cover some of the rising energy prices.

Last week he said it would be ‘silly’ to offer more help with energy bills now, during the summer months when people’s gas and electricity use is typically higher. weak.

Absent a fiscal injection of cash into the economy, it has been left to the blunt instrument of monetary policy to avert what threatens to be the worst squeeze on living standards in living memory. .

Thursday’s interest rate hike would mean higher monthly debt payments for businesses and homeowners, with those on variable and tracker mortgages being the first to be hit.

In total, about 2 million households could see their monthly payments increase after Thursday’s decision.

About 850,000 borrowers have trailing mortgages that track the Bank’s base rate, while a further 1.1 million are on standard variable rates (SVR) that track a rate set by the lender, but also generally track the base rate.

First-time buyers who take out a mortgage would also be required to pay more.

Withdrawing money from household pockets would further weigh on a UK economy struggling to rebound from the pandemic.

Growth began to pull back sharply in February as pressure on the cost of living set in, with official data showing an expansion of just 0.1%, down from 0.8% in January.

The Bank said last month it estimated growth would hit 0.7% in the first quarter, up from a previous forecast of flat gross domestic product (GDP), as the job market also held steady. good.

But many experts see GDP stagnating in the second quarter as consumer confidence weakens further.