A few years ago there was a joke circulating on social media that imagined a world 200 years from now in which the British prime minister went to Brussels every year to seek an extension to the Brexit deadline, the idea being no one could remember how the whole palaver had started. The fact that on Thursday the Bank of England announced the 13th consecutive hike in interest rates, now to 5%, the highest since the financial crash of September 2008, is no laughing matter. It’s rather a horribly recurring anniversary and a harsh dose of reality for millions of mortgage holders who are not on fixed-rate deals, or who perhaps are but with such offers that will soon be expiring.
The rise in rates was decided by a 7-2 vote of the Bank’s Monetary Policy Committee (MPC). It is estimated that people who are not on fixed rates will now typically be paying about £6,300 more per year for their mortgage than they were two years ago. The photo on the home page shows a NatWest bank, one of Britain’s biggest lenders in the housing market which, in common with the likes of Nationwide and NSBC, began ten days ago to withdraw thousands of cheaper mortgage offers in light of the relentlessly upwards trend in interest rates. “It seems to me the government and the Bank are in very deep trouble,” said David Blanchflower, who used to sit on the MPC. “Inflation is higher in the UK [than in comparative economies] and the markets don’t believe they are getting it down. Obviously home-owners are going to get completely whacked and they’ll blame the government.”
Although this is a subject of immense importance to the economy and the country, as well as to the government and to the home-owners themselves, only 28% of houses in the UK are presently subject to mortgage. The biggest single sector of the housing market is comprised of people who own their homes outright (at 36%), yet another example of the benefits of old age…sorry, of being born in a time in which the assumption, and for the most part the reality, was that things would get better for subsequent generations; of being born in a time when the NHS could cope and there were no such things, for example, as university tuition fees. (Rounding out those figures, incidentally, 19% of people live in rented accommodation and 17% in social housing.) Oh plus, of course, there is this: if you are comparatively old and own your home outright, the rise in interest rates may well be helping you by increasing the returns on your savings.
The prime minister, Rishi Sunak, has made a firm pledge out of the fact that by the end of this year he will have got inflation down below 5%. (The Bank of England has an ongoing target of 2%, which it has dramatically overshot.) Sunak might still manage that but, against most expectations, it remained at 8.7% in May and is showing stubborn disdain for the very idea of falling in line with predictions. It is hardly a point of optimism that many financial experts say there is only one way for Sunak’s claim to become a reality: for the country to tip into recession. Heading into an election year, the PM won’t be wanting that. But then no one wants what’s happening now.