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When the latest data is released today, UK annual inflation is expected to fall to the Bank of England’s target of 2% in May, from 2.3% in April.
In March, Bank of England Governor Andrew Bailey said “we are on the way to lower interest rates”, but does an expected fall in inflation mean a rate cut is imminent? Paula Higgins, chief executive of the Homeowners Alliance, is one who certainly hopes that is the case.
She has a message to the Bank of England: “Stop holding homeowners hostage and cut interest rates now.”
Higgins points to the fact that rising borrowing costs are putting a big strain on household finances. For those considering refinancing their mortgage, the top two-year fixed rate in June this year was 4.82%, more than double the top two-year fixed rate in June 2022, at 2.34%.
For someone with a £250,000 mortgage over 25 years, their monthly mortgage payment would fall from £1,102 to £1,435 – an increase of £333 a month and £3,996 a year.
For many households, these increases are simply unaffordable: UK Finance figures show that 870 homes were repossessed in the first quarter of 2024, up 36% on the previous quarter, while 96,580 mortgages were in arrears by more than 2.5% of the outstanding balance in the same period, up 3% on the previous quarter.
The Bank of England has repeatedly maintained that it needs to raise interest rates or keep them unchanged at 5.25% to fight inflation. It has raised interest rates 14 times since December 2021 to curb inflation. Inflation rose from 5.4% in December 2021 to 11.1% in October 2022 and has now fallen to 2.3%, just above its target of 2%.
But Higgins is concerned by speculation that a rate cut may not come until at least September.
She said: “Inflation is no longer at 10% but closer to the 2% target, yet the Bank of England is using this as an excuse to continue to keep interest rates at a 16-year high. I think it is unacceptable for the Bank of England to hold homeowners hostage in this way.”
“It’s not enough to signal that interest rate cuts are on the way – we’ve been hearing that since March. Homeowners’ carefully laid out financial plans have been put on hold as they bear the brunt of the Bank of England’s monetary experiment. We see no justification for this situation to continue.”
“The burden on mortgage borrowers is too heavy to bear, which is why we are calling on the Bank of England to stop attacking homeowners and cut the base rate this Thursday.”