Worrying figures from the Office of National Statistics today sent a stark warning to households with grim news on consumer prices indicating that fixed mortgage rates could still rise even higher making it harder to remortgage or buy a home.
The Office for National Statistics (ONS) said this morning that the rate of price rises has remained at 8.7% in the year up to May, the same as the rate in April, despite expectations of a fall.
A slight decrease to 8.4% had been expected by economists which would have gone some way to calm the mortgage fears of thousands, particularly as the BoE is due to decide on whether to raise interest rates tomorrow.
Falling fuel prices have been offset by rising prices for air travel, recreational and cultural goods and services and second-hand cars.
Core inflation — that strips out food, energy, alcohol and tobacco — rose to 7.1%, from 6.8%.
Prices for food and non-alcoholic beverages eased further from its March high of 19.2% 18.4%.
Inflation had been on course to ease as the annual measure of price growth no longer included the jump in energy prices.
Inflation began to increase in late 2021, when problems linked to COVID lockdowns and the associated worker shortages meant demand for goods could not be met.
Tom Bill, head of UK residential research at Knight Frank, says: “Over the last two months, inflation has replaced the mini-Budget as the biggest obstacle facing the UK housing market.
“Rising interest rate expectations have pushed up monthly mortgage payments, which will contribute to a slowdown in trading activity and house prices this year.
“That said, the wage growth driving core inflation higher is one of the reasons we don’t expect a steep double-digit fall in house prices this year.
“Record levels of housing equity, the availability of longer mortgage terms and the popularity of fixed-rate products in recent years should also prevent a collective cliff-edge moment for the housing market.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services, says: “This is a disaster. With CPI having stayed the same and core CPI rising, we can expect to see gilt yields spike as investors look for higher returns from government debt.
“This spells terrible news for the property market because the Bank of England will be under enormous pressure to hike rates tomorrow, almost certainly by 50 basis points.
“The knock-on effect is mortgage rates will continue to soar and the pain for households will intensify. With mortgage rates already at the most painful level since the 90s, we can expect a slowdown in the property market and house prices are well and truly in the crosshairs.”
It almost certainly signals an impending increase in the base rate tomorrow.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages, says: “The persistent 8.7% CPI inflation, coupled with rising core inflation, was certainly not the news we hoped for.
“It almost certainly signals an impending increase in the base rate tomorrow.
“Our hope is that the Bank of England will restrict its actions to a modest hike, preferably no more than 25 basis points given this data. This is not the data the mortgage market needs.”
A further Bank rate rise is a nailed-on certainty.”
And Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco, says: “The latest inflation data is set to upset an awful lot of people, leading to a new set of rates rises that will compound the pain of a cost of living crisis on the public.
“A further rise in Bank of England base rate is a nailed-on certainty, and there is now a real possibility they could panic and increase by a further 0.5% straight to 5%.
“The Bank has one job to do and it is painfully clear that the tool they are currently using is a blunted instrument against inflation that is now endemic.
“Rather than keep doing the same thing, they should pause for thought and look at a different approach before they inflict real harm on the economy and on people’s livelihoods.”