Bank of England Urged to Cut Interest Rates

Date Published: 19 June 2024

The UK annual inflation rate is expected to drop to the Bank of England’s target of 2% in May, from 2.3% in April, when the latest data is released today.

In March, Bank of England Governor Andrew Bailey said “we are on the way” to interest rate cuts, and so does the anticipated fall in inflation mean rate cuts are imminent? Paula Higgins, chief executive of the HomeOwners Alliance, is among those that certainly hopes that is the case.

She offers this message for the Bank of England: “Stop holding homeowners to ransom and cut interest rates now.”

Higgins points to the fact that the hikes in the cost of borrowing is putting household finances under enormous strain. For those that are remortgaging, the best rate on a two-year fix this June is 4.82% – more than double the best rate on a two-year year fix that was available in June 2022, which was 2.34%.

For someone with a £250,000 mortgage over 25 years this means a monthly mortgage payment of £1,435 compared to £1,102. This is an increase of £333 per month or £3,996 a year.

Many households have found these increases impossible to afford: UK Finance figures show 870 homes were repossessed in the first quarter of 2024 – a 36% jump compared to the previous quarter. While 96,580 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance, during the same period – a 3% increase on the previous quarter.

The Bank of England has repeatedly argued that interest rates needed to increase or remain at 5.25% to fight inflation. They have raised rates 14 times since December 2021 to bring down inflation which went from 5.4% December 2021 to 11.1% in October 2022 and has now dropped back to 2.3%. This is just a fraction over the target of 2%.

But Higgins is concerned by speculation that a rate cut may not happen until at least September.

She said: “Inflation is no longer running at 10% – it’s almost at its 2% target. And yet the Bank of England continues to use it as an excuse to keep interest rates at the current 16 year high. We think it’s unacceptable that homeowners are held ransom by the Bank of England in this way.

“Signalling that rate cuts are on the horizon is not enough. We’ve been hearing that since March. Homeowners’ best-laid financial plans are on hold as they bear the brunt of the Bank of England’s monetary experiment. We cannot see any justification for this continuing.

“The burden is too heavily borne by mortgage borrowers. This is why we’re calling on the Bank of England to stop this attack on homeowners and drop the base rate this Thursday.”

Source: Property Industry Eye