Afternoon summary
Time for a recap.
Chancellor Jeremy Hunt has rebuffed calls to reintroduce tax relief for people’s mortgage payments, as some Conservative MPs push for more help for families.
Speaking in the House of Commons today, Hunt said that such support would undermine efforts to control inflation, ahead of an eagerly awaited update on the cost of living due tomorrow morning.
The chancellor warned against prolonging the “inflation agony” hitting households, saying:
Much as we sympathise with the difficulties and will do everything we can to help people who are seeing their mortgages costs going up, we won’t do anything that would mean we prolong inflation.
Hunt brushed aside suggestions that the government should cap food prices, telling MPs:
I don’t believe capping prices is the right long-term solution.... I will be meeting the regulators next week to talk further about what needs to be done with respect to supermarkets.
Hunt is also planning to meet with mortgage lenders to discuss what forbearance they can provide to borrowers.
Shadow chancellor Rachel Reeves told MPs that households are being hit by the consequence of the Conservative mini-budget last year and “13 years of economic failure”.
The consumer champion Martin Lewis has said the mortgage “ticking timebomb” he warned the government about last year has “exploded”.
Lewis said on Tuesday that if interest rates were going to be high over three or four years, people were going to have to readjust their finances.
Mortgage rates continue to climb, with the average two-year fixed rate rising to 6.07% today, the highest since November.
Analysis by Bloomberg Economics shows that Britain could tip into a shallow recession if the Bank of England pushes its benchmark lending rate to 6% as investors expect.
Tenants are also being squeezed. New figures from Zoopla show that the average UK tenant now spends more than 28% of their pay before tax on rent
Elsewhere in the cost of living crisis, UK grocery price inflation eased for a third consecutive month in June, lifting hopes that food inflation may have peaked.
New figures from market researcher Kantar show that food inflation dipped to 16.5% in the last year.
Fraser McKevitt, the head of retail and consumer insight at Kantar, said:
“This is the lowest rate of grocery price inflation we’ve seen in 2023, which will be a relief to shoppers and retailers.
“But prices rising at 16.5% isn’t something to celebrate and it’s still the sixth highest monthly figure in the past 15 years. Price rises are now being compared to the increasing rate of grocery inflation seen last summer, which means that it should continue to fall in the coming months, a welcome result for everyone.”
Tomorrow we discover if the official inflation measure dropped in May, with economists predicting a small decline from 8.7% to 8.4%.
In other news….
Britain has fallen six places down the global economic competitiveness rankings because business leaders have lost confidence in the country, due in part to “government incompetence.”
That’s the verdict from IMD’s World Competitiveness Ranking, published today, which raises further questions over Jeremy Hunt’s claim to be “proud” of the UK’s economic record since 2010.
The report found that:
Government incompetence, restrictive immigration laws and a tax regime that hinders growth are damaging the UK’s global success.
The UK has managed inflation worse than its global competitors
The UK fares well on infrastructure and legal frameworks, helping it stay in the top 50% of ranked countries.
Updated
How other countries' mortgage markets compare to the UK
The big increases in monthly mortgage costs Britons are facing “just don’t happen here”, says Roger Bartlett, who bought a home in Belgium when working in the country as an air traffic controller.
He says his experience was the same in the Netherlands, where mortgages with 30-year repayment terms are the most common loans used by homebuyers, my colleague Phillip Inman writes.
The rapid increase in UK mortgage rates – the average two-year fixed deal has hit 6% for the first time this year – has raised questions over how the British home lending market compares with overseas nations as interest rates rise across the globe. A picture of a comparatively short-term, highly competitive UK industry quickly emerges.
Bartlett’s first mortgage carried a 9% interest rate, but when new mortgages were beginning to be offered at nearer 4% a few years later, he paid a charge – equivalent to three months of payments – to transfer to the lower rate.
“The benefit to the customer is that you can plan your outgoings for the total period. And for society it brings stability into the market, with most lenders not being affected by the rate changes,” he adds….
More here:
Updated
The Bank of England has a lot to learn from the recent surge in inflation which outstripped the central bank’s forecasts.
That’s the verdict of the head of the BoE’s oversight board today.
David Roberts, chair of the BoE’s Court of Directors, told lawmakers in the House of Lords:
“We think there are lessons to learn.... We need to stand back and ask ourselves what can we learn,”
The Lords are looking into the Bank’s operational independence, amid criticism from MPs that the Bank blundered by leaving interest rates at record lows for too long, and raised them too cautiously.
The Financial Times say Jeremy Hunt will “call in” major lenders on Friday to assess the state of the mortgage market and to see what additional help they can give people struggling with their monthly payments.
The pressure on the housing market will probably intensify on Thursday, when the Bank of England is expected to raise UK interest rates from 4.5% to at least 4.75%.
Amanda Aumonier, head of mortgage operations at mortgage broker Better.co.uk, fears another rate incease will “jeopardise” the housing market, and hurt homeowners who must remortgage soon.
“Two years ago, the government’s stamp duty holiday fueled home buying and resulted in record-high house prices for 1.3 million homebuyers. Those who took advantage of the holiday and opted for a two or three-year fixed deal when rates were much lower are now facing significant increases in their mortgage repayments while their homes are decreasing in value.
“The majority of those who purchased property during the pandemic did so with two or three-year fixed-rate mortgages – many of which are now due to expire. As such, we still haven’t seen the full impact of the Bank of England’s strategy to increase the base rate over the past 18 months. If the BofE decides to raise the base rate once again this week, it will not only continue to jeopardise the housing market overall but could also have catastrophic effects on this group of homeowners, who now need to remortgage”.
Full story: Hunt to meet mortgage lenders later this week
Chancellor Jeremy Hunt has said he will meet lenders later this week to ask what help they can give to borrowers struggling with their mortgage, PA Media reports.
Mr Hunt told the House of Commons he would be asking what flexibilities might be possible for borrowers in arrears.
He said:
“We won’t hesitate in our resolve to support the Bank of England as it seeks to strangle inflation in the economy. The best policy is to stick to our plan to halve it.
“But I also want to make sure we do everything possible to help families paying higher mortgage rates in ways that do not themselves feed inflation.
“So later this week I’ll be meeting the principal mortgage lenders to ask what help they can give to people struggling to pay the more expensive mortgages and what flexibilities might be possible for families in arrears.”
It is understood that the meeting will take place on Friday.
Property portal Rightmove has also reported that mortgage rates continued to rise today.
The average two-year fixed-rate mortgage, at a 95% loan-to-value ratio, was 6.36% today, up from 6.22% a week ago, their data shows.
Rightmove’s mortgage expert Matt Smith says:
“Average rates continue to rise this week, and though they are now rising at a slower pace than last week, this is likely to come as little respite for those looking to take out a mortgage right now. Those who managed to secure a lower rate just weeks ago are likely to be doing all they can to accelerate their home purchase and use this lower rate in time.”
“Some buyers who can, may choose to wait and see what effect this week’s inflation news has on the mortgage market. This is likely to be more influential than the Base Rate decision in determining the direction of mortgage rates in the immediate term. The mortgage market has already factored in a Base Rate rise of up to 0.5%, so any increase on Thursday is unlikely to have a negative impact on mortgage rates.
“The number of people contacting estate agents about a home for sale is still higher than at this time in the last more normal housing market of 2019, meaning that right now, the data indicates that higher rates are not stopping many people from planning their move.”
The pound has dipped by half a cent today – another sign that investors may be less confident that interest rates will rise sharply.
Sterling has fallen to $1.2738 against the US dollar, away from the one-year high set on Friday.
Raffi Boyadjian, lead investment analyst at XM, says:
The pound is trading somewhat lower below $1.28 ahead of tomorrow’s UK CPI [inflation] data, which could determine the size of the rate increase from the Bank of England the following day.
Sterling is the best performing major currency so far this year but there’s a danger that markets have overpriced the scale of tightening that’s yet to come from the BoE.
Mortgage ‘ticking timebomb’ I warned of has exploded, says Martin Lewis https://t.co/x9MlFgfpDN
— Guardian Money (@guardianmoney) June 20, 2023
In the transport sector, National Express Group, the parent company of Britain’s venerable intercity coach service, has today changed its name to the more, er, international-sounding Mobico.
The London listed plc, which now runs services in North Africa and the Middle East as well as Europe and the US, will still keep the original brand for UK coaches, as well as other well-known brand names in its operations abroad.
However, the change reflects its growth worldwide – and perhaps its detachment from at least one sector in the UK, having abandoned its once-significant rail interests in Britain just before franchising blew up.
Announcing the plan last month, Ignacio Garat, chief executive of what is now Mobico, said the new name “better represents our multi-modal operations, global reach and future ambitions”.
…as does the shadow Chancellor:
Whilst the Tories squabble over parties and peerages mortgages are soaring up.
— Rachel Reeves (@RachelReevesMP) June 20, 2023
The average mortgage payment is going up by £2,900 this year.
Why won’t the Chancellor take responsibility for the harm caused by the Tory Mortgage penalty? pic.twitter.com/CHUzFxMB3U
The chancellor tweets….
The single most effective policy to help mortgage holders right now is to bear down on inflation. We won’t put that plan at risk.
— Jeremy Hunt (@Jeremy_Hunt) June 20, 2023
This week, I will meet mortgage lenders to assess the state of the market and to see what flexibilities might be possible for those in arrears. https://t.co/3CaqKeCCOW
Here’s my colleague Richard Partington on today’s calls to introduce mortgage interest tax relief:
Rightwing papers highlight how mortgage misery in 2023 can be blamed on actions taken a quarter of a century ago...
— Richard Partington (@RJPartington) June 20, 2023
How Gordon Brown added £270 a year to your mortgage payments https://t.co/D2sfwXW717
Would the government reintroduce Miras?
— Richard Partington (@RJPartington) June 20, 2023
Asked today in parliament, Jeremy Hunt firmly says no.
"Those kind of schemes, which involve injecting large amounts of cash into the economy right now, would be inflationary"
Signs of fresh Tory schism as Red Wall Conservatives push for reintroduction of Miras, calling it a "Tory principle"...
— Richard Partington (@RJPartington) June 20, 2023
Treasury minister Andrew Griffith says it would be the "sort of unfunded spending commitments that we see on the benches opposite. It would be disastrous..."
Gordon Brown announced the phasing out of Miras in his 1999 budget, arguing that homeowners had benefited from the drop in interest rates since the previous autumn.
Jeremy Hunt’s pledge to keep fighting inflation may be soothing nerves in the City.
UK government bond prices are rising in value, which has pushed down the interest rate (or yield) on the debt.
The yield on two-year government bonds has dropped to 4.94%, a day after hitting 15-year highs over 5%, lifted by fears over inflation and higher interest rates.
Hunt: I am proud of our economic record
Shadow chancellor Rachel Reeves tells MPs that mortgage rates are rising due to 13 years of economic mismanagement and the mini-budget last year, leaving to higher inflation in the UK.
Q: Average mortgage payments are going up by a crippling £2,900 this year – where does the chancellor think families are going to get the money to pay the Tory mortgage penalty?
Jeremy Hunt says the government announced £94bn support in the autumn budget.
He says Labour’s plans mean an extra £28bn of borrowing per year, at a time when experts say higher borrowing mean higher inflation, higher interest rates and higher mortgage rates.
Reeves tells the chancellor to stop passing the buck, and focus on the mortgage crisis.
She say 10,000 households in Uxbridge and South Ruislip will be paying £5,200 more on average this year (which may concentrate minds at the upcoming by-election).
Q: Will the chancellor apologise for the harm that his government have caused?
He will not. Hunt declares, to some chortles from opposition MPs, that:
I am proud of our economic record, which has seen our economy grow faster than France or Japan since 2010, and the same rate as Germany.
Mortgage holders will pay even more if a Labour government borrowed an extra £100bn in the next parliament, Hunt adds.
Hunt to meet with mortgage lenders to discuss help for households
Chancellor Jeremy Hunt has told MPs he will meet major lenders later this week to ask them to show forbearance towards households who struggle to pay rising mortgage bills.
During Treasury questions, Hunt says the government “won’t hesitate in our resolve” to support the Bank of England in its fight against inflation.
The best policy is to stick to our plan to halve it.
Hunt adds:
“Later this week, I’ll be meeting the principal mortgage lenders to ask what help they can give to people struggling to pay more expensive mortgages, and what flexibilities might be possible for families in arrears.”
Updated
Now this is interesting… a second Conservative MP has backed calls for mortgage interest tax relief to be introduced.
Jonathan Gullis, the Conservative MP for Stoke-on-Trent North, tells MPs that mortgage payers in his constituency are worried about the impending rise in borrowing costs.
Gullis says he supports Jake Berry’s call for mortgage interest tax relief (see earlier post).
Gullis argues that it is time to return to a “Conservative principle” of a MIRAS-type scheme that allows borrowers tax relief for interest payments on their mortgages.
In reply Andrew Griffith, financial Secretary to the Treasury, says the government won’t come forward with unfunded spending commitments, as they would be “disastrous” as it would mean inflation is higher for longer.
Q: Will the goverment consider the Liberal Democrat idea of a mortgage protection fund to support struggling households, asks Christine Jardine, MP for Edinburgh West.
Treasury minister Andrew Griffith says that “regretably”, this proposal would delay the point when inflation would come down, and also does nothing to support private renters.
Updated
It's strange to see some Conservative MPs call for the restoration of Mortgage Interest Relief at Source (MIRAS).
— Sam Dumitriu (@Sam_Dumitriu) June 20, 2023
Aren't they meant to be in favour of simpler taxes? https://t.co/V5dAByNGrv
Hunt: must not prolong inflationary agony
Stewart Hosie, Scottish National Party MP for Dundee East, reminds MPs that the cost of a two-year fixed mortgage has risen from 2.57% in March 2021 to over 6% today.
Q: As the government have no plans to change the Bank of England’s inflation target, which means interest rates will keep rising, what will you do to actually tackle the mortgage pain people are suffering from?
Hunt says interest rates have risen in other countries, and at a faster rate in the US and Canada than in the UK.
The chancellor says:
We will look at doing everything we can to help people under pressure, but we won’t do things that will prolong the inflationary agony that people are going through.
We have to be very careful, because a lot of the schemes that are being proposed would actually make inflation worse and not better.
Hunt makes clear - again - that his only policy to bring down interest rates is to stay the course on crunching inflation. He tells the Commons: "A lot of the things that are being proposed would actually make things worse not better."
— Hugo Gye (@HugoGye) June 20, 2023
Hosie points out that in March, the Office for Budget Responsibility thought inflation would peak at 2.9%. By May, the Bank of England was predicting 5% – nearly double.
Q: Will the chancellor guarantee today that inflation will be halved to 5%, as promised by the prime minister?
Hunt says the IMF, the OBR and the Bank of England all predict the UK government will hit its target of halving inflation.
I give him this guarantee – we will stick to the plan to do so.
Hunt rules out mortgage interest tax relief help
Chancellor Jeremy Hunt has ruled out providing large-scale assistance to mortgage payers, through tax relief on their mortgage payments.
Sir Jake Berry, Conservative MP for Rossendale and Darwen, tells MPs at Treasury Questions that people are very concerned about what is being called a “mortgage bomb that is about to go off”.
Q: Is it time to consider reintroducing a bold Conservative idea of mortgage interest relief at source. If we don’t help families now, all the other money we have spent to help them will be wasted if they lose their home.
Hunt replies that such schemes, involving injecting large amount of cash into the economy, would be inflationary.
He adds:
Much as we sympathise with the difficulties and will do everything we can to help people who are seeing their mortgages costs going up, we won’t do anything that would mean we prolong inflation.
Tory MP Jake Berry asks Jeremy Hunt to consider reintroducing tax breaks for mortgage interest. Chancellor rejects idea because it would "involve injecting large amounts of cash into the economy" and therefore stoke inflation.
— Hugo Gye (@HugoGye) June 20, 2023
Mortgage interest tax relief – effectively a tax break for home buyers – was introduced in 1983 to boost homeownership but scrapped in 2000.
Updated
Q: The former US treasury secretary [Larry Summers] said this month that Brexit was a historic economic error, and that the government’s economic policy had been “substantially flawed for a number of years”.
Will the chancellor admit that leaving the world’s largest single market has had a significant impact on inflation, and a deleterious impact on household finances across the country?
Jeremy Hunt scampers down the pitch to repel this suggestion, pointing out that the UK has grown faster than Italy and France since leaving the single market.
The head of the IMF said the UK “is on the right track”, Hunt adds.
[those comments, from Kristalina Georgieva, came a day before UK inflation failed to fall as much as expected in April].
Hunt: Can't blame Brexit for food inflation
Patricia Gibson, SNP MP for North Ayrshire and Arran, turns Treasury questions to the cost of living squeeze.
She reminds MPs that former Bank of England Mark Carney had spoken about how before the Brexit referendum, the BoE had warned that Brexit would probably mean a weaker pound, higher inflation and weaker growth:
Q: Is it fair that the UK government’s decision to ignore those stark warnings are being paid for by households who can least afford it?
Chancellor Jeremy Hunt says he doesn’t “buy this Brexit narrative”.
Food price inflation has been around 20% in Germany, Sweden, Portugal and Poland in recent times, Hunt says [in the UK it’s running at around 19%].
He insists:
This is not a UK-specific issue.
We are all dealing with the consequences of Putin’s invasion of Ukrraine and the aftermath of the pandemic, and we are all tackling it with one central focus, to bring down inflation as our overriding priority.
Watch Treasury Questions here
Treasury questions underway: Hunt rules out food price caps
Over in parliament, Treasury ministers are taking questions from MPs – at a time when the cost of living crisis has soared up the political agenda.
Ian Byrne, Labour MP for Liverpool, West Derby, asks what fiscal steps the chancellor plans to take to help reduce the impact of recent increases in the cost of living on households.
Chancellor Jeremy Hunt says the government knows the pain that households up and down the country are going through.
It has introduced “one of the largest support packages in Europe”, Hunt adds, worth £3,300 per household this year and last year.
Byrne points out that Which? has shown that own-brand supermarket food brand prices have risen by 26.6%. We now have security locks on baby formula milk, at a time when corporations are making vast profits, he says.
Byrne reminds the Commons that the government have signed up to UN goals of eradicating poverty. So..
Q: Will he cap essential food prices and tackle the grotescue profiteering in the food industry that is driving many of my constituents in Liverpool, West Derby into poverty?
Hunt says he totally respects Byrne for raising these concerns, but doesn’t support such price caps.
The chancellor says:
I don’t believe capping prices is the right long-term solution.
Hunt insists that “we are doing a lot”, citing payments of £900 per household for people on means-tested benefits, £150 for households with a disabled member, and £300 for thosewith pensioners.
This, Hunt adds, is:
Precisely because we want to help the people he is talking about.
Hunt adds that he will meet with regulators next week to discuss what else can be done with respect to supermarkets…
NS&I boosts Premium Bonds prize fund and Junior ISA interest rate
Rising interest rates can be profitable for savers, with NS&I raising the rates on its Premium Bonds today, and its savings package for young people.
ThePremium Bonds prize fund rate has been increased to 3.70%, its highest rate in 15 years, and the Junior ISA interest rate increased to 3.65%.
Myron Jobson, senior personal finance analyst at interactive investor, says other savings rates have also been rising, creating more competition….
“NS&I has once again sweetened its popular flagship product in a bid to meet a lofty target set by the government to attract £7.5bn from savers in the current tax year, which is 25% more than the £6bn target for the previous year.
It is a tall order for the government-sponsored bank facing stiff competition from other savings providers.
Easy access savings rates have hit 4% for the first time since 2009, and market-leading one, two, three and five-year fixed bonds all offer 5.30% or more according to Moneyfacts.
Mortgage ticking time bomb is now exploding, says Martin Lewis
Consumer champion Martin Lewis has said that a mortgage ticking time bomb that he previously warned about is now exploding.
The MoneySavingExpert.com founder told ITV’s Good Morning Britain that he had previously highlighted a “mortgage ticking time bomb”.
He continued:
“And I’m afraid that time bomb is now exploding.”
Lewis was speaking around the time that Moneyfacts reported that the average two-year fixed-rate mortgage now cost 6.07%, the highest since November, and as Bloomberg warned that high interest rates could cause a recession.
Mr Lewis said that if interest rates are going to be high over three or four years, people are going to have to readjust their finances.
He said he could not see a mortgage rescue package being brought in, as the whole point of higher interest rates is to leave people with less disposable income.
Many asking "how do to prevent my mortgage rate jumping unaffordably when my fix ends?"
— Martin Lewis (@MartinSLewis) June 20, 2023
The problem is @bankofengland interest rates rises are a deliberate disposable income squeeze. Its designed for you to pay massively more, so there's less money in economy, to help inflation.…
As I've said before, it looks like we're saying BofE must control inflation with its one tool; interest rates. Even tho that controls demand and our issue is supply. We need joined up action cross govt & finance. Yet I must caveat, I'm not an economist, this isn't my expertise.
— Martin Lewis (@MartinSLewis) June 20, 2023
Lewis also criticised the UK banks for not making it easier for struggling borrowers to take payment holidays, temporarily reduce the amount they pay in, or to switch to interest-only loans.
Lewis said he gave his views during a mortgage summit held by Chancellor Jeremy Hunt last year, explaining today:
“And what I was suggesting in that meeting is, first of all those things need to be made reversible, so you know that if you can do it temporarily you can go back without a problem. That isn’t the situation.
“And second, they need to look at minimising the impact on people’s credit scores, because that puts people off taking a form of action, it scares them that they’re going to be disenfranchising themselves from other forms of borrowing for six years, but again, that hasn’t happened.
“So the ultimate result of that mortgage summit was a tiny bit more communication to borrowers.”
Updated
Investors have been racing to add to bets on higher UK interest rates over the past few weeks, almost fully pricing in a surge to the highest level in two decades.
Bloomberg explains:
Markets now are betting rates rise at least a quarter point on Thursday, to 5% by August and almost 6% by February.
Rates at that level would send mortgage rates further into territory the BOE has identified as painful for households, with more than 1 million required to refinance loans at significantly costs this year.
Britain could tip into a recession if the Bank of England pushes interest rates to 6% as investors expect, an analysis by Bloomberg Economics shows https://t.co/kmujXye52W
— Bloomberg (@business) June 20, 2023
Not every analyst believes UK interest rates will rise as high as 6%.
Mohit Kumar of investment bank Jefferies predicts rates will peak at 5%, half a percentage point higher than today.
Kumar explains:
Our view is driven by the impact of BoE hikes on the mortgage market and the housing sector, which would constrain the BoE.
The view is also driven by the fact that we believe that monetary policy on its own would be ineffective in controlling inflation, unless accompanied by support from the fiscal policy.
BoE hikes will have limited impact on inflation, hence in our view, there is a need of fiscal support.
"Things may well get worse before they get better" for mortgage pricing
The cost of fixed-rate mortgages may continue to rise, unti the markets see signs that UK inflation is falling steadily.
Nicholas Mendes, mortgage technical manager at broker John Charcol, explains:
My worry is that things may well get worse before they get better, while we expect inflation figures [on Wednesday] to come down the anticipation will be they in line with market forecasts. If not, markets will be pricing in higher base rates over a longer period of time.
We also have the MPC meeting on Thursday which will also play a part in market reaction following the governors’ comments.
Markets need stability and a positive outlook for the future, once we have this in our sights this is when we will see swaps reduce and start to see fixed rate pricing come down.
Homeowners need to understand that sub 2% rates aren’t the norm and should not be used as a benchmark of where rates will return to in the future. A mortgage is a long-term commitment which ultimately means you must take the rough with the smooth.
Despite the cost of living crisis, demand for cruises for the older-50s is holding up well.
Saga has reported that its load factor (which measures how full its cruise ships are) is already 79% for the current financial year, up from 72% at this time last year.
Underlying profits is expected to be well ahead of the prior year, with Saga’s River Cruise and Travel businesses on track to return to profitability.
Euan Sutherland, Saga’s CEO, says:
“Four months into the financial year, we have continued to build on the momentum in our Cruise and Travel operations, while making further progress in our growth agenda through the development of our newer businesses. Year-end underlying profit is expected to be well ahead of the prior year.
“We have taken strong bookings for our ocean cruises with a load factor that is ahead of the same point in the prior year, and our River Cruise and Travel businesses are on track to return to profitability in line with previous guidance.
Buy-to-let mortgage rates have also risen again.
Moneyfacts reports:
The average 2-year buy-to-let residential mortgage rate today is 6.40%. This is up from an average rate of 6.30% on the previous working day.
The average 5-year buy-to-let residential mortgage rate today is 6.29%. This is up from an average rate of 6.23% on the previous working day.
There are currently 2,525 buy-to-let mortgage products available. This is up from a total of 2,515 on the previous working day.
Two-year fixed mortgage rates hit 6.07%
Average two-year fixed mortgage rates in Britain have jumped to their highest since late November, as the turmoil in the mortgage market continues.
Data provider Moneyfacts report that the average two-year fixed mortgage rate has risen to 6.07% this morning, up from 6.01% yesterday.
At the start of May the average was 5.26%, but it has been rising steadily higher as financial markets have anticipated further rises in UK interest rates – possibly to 6%.
The average cost of five-year fixed-rate mortgages increased to 5.72% from 5.67%, which is the highest since early December.
There are also fewer mortgages on the market, too. Moneyfacts reports there are 4,641 residential mortgage products available today, down from 4,683 on Monday.
Updated
Investors are still repricing their expectations for the Bank of England base rate, after the very strong employment data last week [showing faster wage growth], reports Jim Reid of Deutsche Bank.
Reid says:
One particular milestone from yesterday was that for the first time since the mini-budget turmoil, overnight index swaps were pricing in a 6% [Bank of England] base rate as more likely than not by the close, and not just on an intraday basis.
This positioning comes ahead of a pivotal few days for UK macro, since we’ll get the May CPI [inflation] release first thing tomorrow, and then the Bank of England’s latest policy decision on Thursday, where another 25bp hike is widely expected.
UK "headed for recession if interest rates hit 6%"
The UK economy could fall into recession if the Bank of England lifts interest rates as high as some investors expect.
New analysis from Bloomberg Economics show that Britain could tip into a shallow recession if the Bank of England pushes its benchmark lending rate to 6%
Currently, the money markets indicates there’s a slightly greater than evens chance that BoE base rate hits 6% by February 2024, up from 4.5% at present (with a rise to 4.665% expected on Thursday).
🇬🇧Bank of England's terminal rate expectations surge to 5.75-6.0% (currently 4.5%) due to higher-than-expected wage and core inflation data. Will the UK have the highest interest rates among G7 countries? Watching Thursday's #BOE meeting for answers. pic.twitter.com/oUKOR5xsue
— MacroMicro (@MacroMicroMe) June 19, 2023
Bloomberg has calculated that, if rates hit 6%, GDP would shrink by 1.4% in 2024.
“Our own view is that the pricing is probably overdone,” Dan Hanson, an economist at BE, wrote in a note published Tuesday.
Hanson adds:
“But if this tightening cycle has taught us anything, it’s not to underestimate the persistence of inflation.
The BOE may judge a significant slump is what’s needed to prevent the inflation psychology in the UK from becoming embedded.”
UK Headed For Recession If Rates Reach 6%, Economist Says - BBG https://t.co/0QVYgZvmns
— LiveSquawk (@LiveSquawk) June 20, 2023
Because more people are on fixed-rate mortgages than a few decades ago, it will take longer for previous increases in interest rates to impact households
Hanson writes:
“With that in mind, we think there’s a significant risk of a downturn later this year — even on our relatively dovish policy view. If rates were to climb to 6% the slump would be even deeper.
Updated
In the financial markets, Britain’s short-term borrowing costs have nudged up to a 15-year high.
The yield (or interest rate) on UK two-year government bonds rose to 5.088% this morning, a day after hitting 5% for the first time since 2008.
These two-year bonds are used to set mortgage prices, and are rising as the markets anticipate further increases in UK interest rates.
The more vulnerable segments of society have been hit particularly hard by persistent inflation, points out Mohamed El-Erian, chief economic adviser at Allianz.
The Context: Food #inflation has been persistent, hitting the more vulnerable segments of society particularly hard.
— Mohamed A. El-Erian (@elerianm) June 20, 2023
The Latest: Grocery prices in the UK rose by 16.5% in the last month, down from the prior 17.2%.
What Next: Tomorrow, we get the more comprehensive inflation data…
Total spending on UK supermarket’s ‘own label’ value ranges has rocketed by 41% compared to last year, Kantar’s monthly data shows.
This means the value section of the market has been the fastest growing segment every month since June 2022.
Fewer products on sale for £1
The proportion of products sold for £1 in UK supermarkets, has almost halved in a year from 9% to 5%.
That’s a big shift, reports Kantar, who argue that the cost of living crisis is discouraging retailers from riced products at ‘round-pound’ points.
They explain:
Traditionally, ‘round-pound’ prices have been attractive to shoppers, who find them easier to relate to and practical as well with no leftover change.
But, with retailers eager to offer value and cash buying less popular, £1.25 has emerged as an increasingly important price point. It now vies with £2 as the second most popular price for a grocery item.
📈🛒 Interesting detail from monthly @Kantar supermarket inflation figures:
— Harry Wallop (@hwallop) June 20, 2023
“The proportion of products sold for £1, the single most popular price for a grocery item, has almost halved in a year from 9% to 5%. That’s a big shift.”
Discount supermarkets grow market share
Aldi was the fastest growing UK retailer in the 12 weeks to 11 June, as cash-squeezed households flocked to discount suprermarkets.
Aldi’s sales rose by 24.6%, giving it a new record market share of 10.2% – up from 9% a year ago
Lidl grew its sales by 23.2%, and now has 7.7% of the market.
![UK supermarket market share](https://media.guim.co.uk/6db33a757d373db7e16a3bcf9ecf3e56e1012106/13_14_1978_1152/1000.jpg)
Updated
Key event
UK supermarkets hiked prices of some summer favourites last month, such as icecreams and BBQ food.
Fraser McKevitt, Kantar’s head of retail and consumer insight, says:
The increased cost of staying cool will have come as a shock for many, with like for like prices on ice cream up 20% and mineral water up 17%.
The barbecue spread has equally been hit. Fresh sausage prices have risen by 16% while fresh burgers increased by 13%, showing how grocery price inflation is continuing to hurt consumers at the till.
Updated
Grocery inflation drops to 16.5%, lowest level this year
Newsflash: Food price inflation across Great Britain has eased, but prices are stil rising at a painfully high pace.
Annual grocery inflation dropped to 16.5% for the four weeks to June 11, analysts at Kantar have reported, the lowest level recorded in 2023.
That’s a fall from the 17.2% recorded a month ago, and below the record 17.5% recorded in March.
But this still means supermarket prices are rising much faster than wages, or the wider measure of consumer price inflation (which was 8.7% in April – we get May’s figure tomorrow).
Fraser McKevitt, head of retail and consumer insight at Kantar, said:
“This is the lowest rate of grocery price inflation we’ve seen in 2023, which will be a relief to shoppers and retailers.
“But prices rising at 16.5% isn’t something to celebrate and it’s still the sixth highest monthly figure in the past 15 years.
“Price rises are now being compared to the increasing rate of grocery inflation seen last summer, which means that it should continue to fall in the coming months, a welcome result for everyone.”
Updated
First-time buyers struggle as lenders pull mortgage deals
First-time buyers are being hit by a drought in mortgages, as lenders pull back from offering home loans for those with small deposits.
The number of products for borrowers who need to borrow 95% of the value of their home has dropped by over 40% over the past year, the Financial Times reports.
According to data provider Moneyfacts, there were 199 products on offer over the weekend for would-be buyers looking to borrow up to 95 per cent of the value of the property, down from 347 at the start of June 2022.
The average interest rate on a two-year fixed 95 per cent loan-to-value mortgage jumped by more than 3 percentage points to 6.49 per cent over the same period, while for five-year products it rose more than 2 percentage points to 5.8 per cent.
“The constant rate changes and ongoing market uncertainty is causing havoc,” said Aaron Strutt, director at Trinity Financial. “First-time buyers are struggling to access mortgages, especially if they have smaller deposits.”
A 5% stake in the housing game is a risky bet for both the house & the player in a mkt downturn - According to @Moneyfacts_couk mortgage products for buyers looking to borrow up to 95% of the value of a property saw their options reduce from 347 at the start of June to 199 @FT pic.twitter.com/I1b7N96GFW
— Emma Fildes (@emmafildes) June 20, 2023
Food and drink inflation pressures ease
A glimmer of good news – the input production costs of UK food and drink manufacturers have fallen for the first time since April 2016.
This provides optimism that future food price inflation will ease, reports Lloyds Bank, athough they fear it will be “some time” before this feeds through “if at all” to on-the-shelf food prices.
Food and drink producers benefited from a drop in commodity prices last month, with the prices of vegetable oils, cereals and dairy products falling on the global markets.
The cost of shipping, and energy, both eased in May too, helping to reduce cost pressures.
![A chart showing UK firm input costs](https://media.guim.co.uk/38ba10435575718ddc17a0b97067195be45e99d3/0_0_487_338/487.png)
But, Lloyds Bank’s UK Sector Tracker found that salary inflation is the ‘stickiest’ element pushing up prices.
Annabel Finlay, managing director for Food, Drink and Leisure at Lloyds Bank Commercial Banking, explains:
“This drop breaks sustained rises in production costs for food and drink manufacturers, which have been among the sharpest of any sector monitored by the Tracker.
“If production costs continue to fall, whilst welcome, it will still take some time before we see the benefit in terms of shelf prices. This is, in part, due to the long-term nature of contracts between the manufacturers and retailers, as well as the broader segments of the production chain.
“With the continued risk of future disruption to supply chains that could mean input costs rising again, food and drink manufacturing companies should continue to review their supply relationships and optimise their working capital to help shield against any market shocks and build ongoing resilience.”
![A chart of input cost inflation for food and drink producers](https://media.guim.co.uk/d0cf77b9655f76ff36b8342cdececce203444c58/0_0_487_338/487.png)
Introduction: Tenants squeezed as rent takes up 28% of pre-tax pay
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s cost of living squeeze is rocking the property sector, driving up cost for tenants and mortgage-owners alike.
With rents rising faster than wages, the average UK tenant is now spending more than 28% of their pay before tax on rent, figures compiled by property portal Zoopla shows.
That means people are spending more of their wages on rent than at any other time in the last 10 years.
Average rents for new lets have also risen, Zoopla reports – jumping 10.4% in a year. With wages only growing by 5.7% during 2022, it has become harder for people to afford places.
In April, rent in London was 13.5% higher than a year ago, in Scotland it was 13.1% higher, and the North West of England saw a 10.5% increase.
Richard Donnell, executive director at Zoopla, said there was signs of financial “stress” for tenants, particularly those on low incomes.
Donnell adds:
“The impact of higher rents is not uniform with those on low incomes bearing the brunt, with increasing signs of stress.”
NEW @Zoopla rental report finds 1) rents for new lets have outpaced earnings for 21 months, 2) Rental affordability worst for a decade but 3) talk of landlord exodus overdone - higher mortgage rates hit 20-30% of landlords with >50% LTV loans pic.twitter.com/wiW6pKWb8q
— richard donnell (@richard_donnell) June 20, 2023
Those looking to remortgage also face more stress, given the recent increases in borrowing costs.
Yesterday, the cost of the average two-year fixed rate mortgage hit 6% for the first time since December, but the government is resisting calls to help struggling mortgage-payers.
TSB has became the latest lender to pause sales of some of its mortgages, by removing some products at 4pm yesterday.
Also coming up
At 8am we discover if food price inflation eased in the last month, when market research group Kantar releases its latest assessment of the grocery market.
Investors are digesting an overnight rate cut in China overnight. The People’s Bank of China has cut its one-year and five-year loan prime rates 10 basis points each (0.1 percentage point), as Beijing tries to stimulate its economy.
The agenda
8am BST: Kantar monthly report on UK grocery industry
10am BST: Eurozone construction output in April
1.30pm BST: US housing starts and building permits data for May