Labour has warned that more than half a million homeowners face a surge in mortgage costs before the local elections in England in May, as ministers battle to contain the damage from what is expected to be a long period of high interest rates.
With the Bank of England widely expected to hold its key base rate at 5.25% on Thursday, the party released analysis that showed 630,000 more homeowners would be hit by higher borrowing costs before local elections next year.
Based on figures from the Office for National Statistics, Labour’s analysis suggested that more than 3,400 households would re-mortgage every day in the six months between 2 November and 1 May 2024 in a financial timebomb ahead of the next local and general elections.
Financial markets give a more than 90% chance of the Bank holding borrowing costs at the highest level since April 2008, after Threadneedle Street paused its most aggressive tightening cycle in decades in September.
With inflation in the UK at the highest level in the G7, after sticking at 6.7% in September, the Bank is likely to say that high interest rates will be required for a prolonged period to ensure inflation falls back to its 2% target set by the government.
Speaking on a visit to a housebuilding site in Stevenage, Rachel Reeves, the shadow chancellor, said homeowners were being left worse off after 13 years of Tory economic failure.
“It was the Conservatives’ disastrous mini-budget last year that crashed the economy, sent mortgage rates soaring and made the dream of homeownership a nightmare for hard-pressed families.”
For a typical borrower rolling off a fixed-rate deal in the second half of this year, the Bank estimates a rise in monthly interest payments of about £220.
Financial markets expect rates to be left unchanged until at least the autumn of 2024. However, fears are growing over a worsening economic slowdown after 14 consecutive rises from a record low of 0.1% in December 2021.
Figures from the manufacturing sector compiled by S&P Global and the Chartered Institute of Procurement and Supply on Wednesday showed UK factory output fell for an eighth successive month in October – the worst run since 2008-09.
“The factory sector remains a weight dragging on an economy already skirting with recession,” said Rob Dobson, a director at S&P Global Market Intelligence.
Underscoring the risks to the economy, voices from across the political spectrum warned the Bank that rate cuts would be needed to support jobs and growth despite the risks from inflation.
The trade union Unite said the Bank needed to “put squeezed workers ahead of profiteering by the big four banks”, which, it said, had benefited by driving up the interest charged on loans faster than the rates offered on savings.
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“This has to stop,” said Sharon Graham, the Unite general secretary. “High inflation has not been driven by workers, it’s been driven by the greed of the profiteers.”
The free market Institute of Economic Affairs thinktank said a quarter-point cut to 5% was needed on Thursday. Trevor Williams, the chair of the IEA’s shadow monetary policy committee, said: “There is mounting evidence that the UK’s monetary policy is too tight and could lead to price deflation in a few years and potential recession in the interim.”
Consumers are cutting back ahead of the key Christmas shopping period, as rising living costs and higher mortgage bills weigh heavily on spending power. However, there are risks of renewed inflationary pressures as the Israel-Hamas conflict triggers a fresh increase in global energy prices.
The UK’s annual inflation rate unexpectedly held steady in September after a sharp rise in fuel costs for motorists, highlighting the political risks of Rishi Sunak’s pledge to halve inflation this year.
A Conservative source said interest rates were high around the world as economies grapple with inflation. “The worst thing we can possibly do right now is listen to the Labour party who have a dangerous plan to borrow an extra £28bn a year which will send inflation and mortgages sky high,” they said.
