The Monetary Policy Committee, which decides the official interest rate in Great Britain, will meet and take a decision that could see an increase in mortgage rates at a time when British households are facing the crisis of the cost of living. The Committee may be planning to push the current interest rate of 2.25 percent to 3 percent, which would be the highest since the financial crisis of 2008.
If the interest rate rises by 0.75 percent, you will see the largest single increase since 1989.
In October, markets predicted that the interest rate could rise by as much as one percent, but this appears to have changed since Liz Truss left the prime ministership.
Andrew Bailey, the governor of the Bank of England, said that the increase in interest rates could be bigger than the previous increase of 0.5 percent which set inflation at 2.25 per one hundred.
He said: “As things stand today, my best guess is that inflationary pressures will require a stronger response than perhaps we thought in August.”
Analysts at Deutsche Bank expected the Bank of England to decide on a 0.75 percent hike with a split committee vote.
They said they are waiting for the latest economic report, which will also be announced on Thursday, to show that “the economic outlook is further deteriorating”.
The experts added: “At market prices, the UK economy is likely to fall into a deeper and more prolonged recession.”
James Smith, an analyst of developed markets at ING, had a similar forecast and said: “The new set of forecasts due, which is crucial based on market interest rate expectations, is likely disappointing – showing a deep recession and inflation falling below the medium-term target,
“This should be read as a not-so-subtle hint that market prices are inconsistent with their inflation target.”
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The committee meeting comes at a time when house prices fell by 0.9 percent last month, according to data from the National Building Society.
The average price of a British house fell to an average of £268,282, and annual house price growth decreased from 9.5 per cent to 7.2 per cent.
The building society predicted that house prices will continue to fall in the coming months as interest rates continue to rise.
Robert Gardner, Nationwide’s chief economist, said: “The market is undoubtedly affected by the turmoil following the mini-budget, which has led to a sharp rise in market interest rates.”
He said: “Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.”
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Kwasi Kwarteng’s mini-budget announcement to cut tax on high earners sent mortgage rates soaring after markets became uncertain about how the Government would pay for the .new tax cuts.
Economic instability led former Prime Minister Liz Truss to resign after replacing the former Chancellor with Jeremy Hunt.
The rise in mortgage rates means first-time buyers earning an average salary with a 20 per cent down payment have seen their monthly mortgage payments rise by 34 per cent.
Garrington Property Finders CEO Jonathan Hopper said: “The chaotic aftermath of the mini-Budget has sent tremors through the property market which has left buyers and sellers reeling.
“The worst part of it is, it’s likely we’ll be feeling the aftershocks for months to come.”