Prime Minister Boris Johnson
(Picture: PA Wire)Millions of families have been warned that their mortgages could rise even further if Britain is hit by an inflationary spiral.
Boris Johnson issued the warning as he defended the government’s stance not to pump billions more into alleviating the cost of living crisis as energy bills soar and food prices rocket.
The Prime Minister also rejected fresh demands to impose a windfall tax on energy companies after BP announced its underlying quarterly profits had risen to £5bn - its highest quarterly earnings in over a decade.
Mr Johnson’s Conservatives are braced for losses in this Thursday’s local council elections as the government faces a backlash over the cost of living crisis and the partygate scandal.
But with the Bank of England’s Monetary Policy Committee expected to raise interest rates to their highest level for 13 years when they meet at Thursday lunchtime, the Prime Minister said the government needed to be prudent, arguing there was a risk that households could be hit even harder if the ministers stepped in by spending more on benefits or financial support.
“We have a short term hit caused by the spike in energy prices across the world,” Mr Johnson told ITV’s Good Morning Britain. “If we respond by driving up prices and costs across the board in this country, responding by the government stepping in and driving up inflation that will hit everybody. And that will mean that people’s interest rates on their mortgages go up.
“The cost of borrowing goes up and we face an even worse situation. We’re already spending £83bn a year to serve as the cost of government debt. That huge. That’s far more than we spend on defence on many other budgets across Whitehall. It’s a huge sum of money. And the risk is that we’ll have an inflationary spiral…Then you’ll see interest rates going up and that will hit people in their mortgages.”
Last week Chancellor Rishi Sunak reportedly warned Cabinet ministers that interest rates could rise to as much as 2.5 per cent by the end of the year as the Bank of England battles the surge in inflation, which the Office for Budget Responsibility predicts could rise as high as 8.7 per cent by the end of 2022.
Members of the Bank’s MPC have already raised its base rate from 0.25 per cent to 0.75 per cent and is predicted to increase rates again this week to levels not seen since early 2009.
The latest warning over the cost of living crisis came as a huge surge in profits from BP triggered new demands for a windfall tax to help households struggling with record energy bills.
The British oil and gas “super-major” revealed today that it made an underlying profit of $6.25 billion (£5 billion) in the first three months of the year, its biggest quarterly earnings in a decade.
BP said profits had been driven by “exceptional oil and gas trading” at a time when wholesale energy prices have soared as a result of the invasion of Ukraine.
Labour leader Sir Keir Starmer told BBC Radio 4’s Today programme that Labour would levy a one-off tax on the “excess” profits that energy firm did not expect to make.
That could raise enough to reduce energy bills by up to £600 for those most in need he said.
Critics also pointed to how shareholders benefited from a $1 billion dividend and $1.6 billion share buyback during the quarter.
Lib Dem leader Sir Ed Davey said: “The Conservative government’s refusal to introduce a windfall tax on the super profits of oil companies is becoming impossible to justify.
“BP is raking in eye-watering profits while millions of people struggle to pay the bills. It is an unforgivable lack of leadership from Boris Johnson at a time of national crisis.
“Oil companies are handing out huge dividends and buying back shares, they could easily afford to pay a little more to help the most vulnerable.”
But in his ITV interview Boris Johnson played down any suggestion that the government could bring in its own version of the policy.
He said: “If you put a windfall tax on the energy companies, what that means is that you discourage them from making the investments that we want to see that will, in the end, keep energy prices lower for everybody.”
BP trading profits were dwarfed by a huge write-off from its decision to exit its 19.75 per cent stake in Russian oil giant Rosneft which pushed it $20.3 billion (£16.2 billion) into the red in the quarter.
