Gloomy new inflation figures have raised market fears of a “shock-and-awe” interest rate hike of 0.5 per cent by the Bank of England on Thursday, spelling further pain for homeowners with mortgages.
Inflation unexpectedly remained frozen last month on 8.7 per cent, the Office for National Statistics said on Wednesday morning, with core inflation – which excludes items such as food and energy – hitting its highest level for 31 years.
As a result, markets are now betting more heavily that the central bank will push its base rate to 5 per cent this week instead of a less severe move to 4.75, with chancellor Jeremy Hunt saying that government “will not hesitate in our resolve to support the Bank as it seeks to squeeze inflation”.
With these worsened expectations yet to be priced into existing mortgage deals, Moneyfacts figures showed the average rate of a two-year fixed deal had already risen to 6.19 per cent on Wednesday – up from the 6.01 figure which prompted warnings of a “mortgage disaster” on Monday.
