MORTGAGE deals rose above six per cent yesterday amid fears the Bank of England will raise its current 4.5 per cent base rate on Thursday.
Some traders fear the rate could top six per cent by February, meaning mortgages of almost nine per cent. So what’s in store?
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Sun Business asked six experts what they thought the Bank’s Monetary Policy Committee would do next:
Yael Selfin – Chief Economist at KPMG
STICKY inflation, strong wage growth and a tight labour market are likely to see the Bank raising interest rates by 0.25 per cent on Thursday.
This is despite falling energy prices easing headline inflation.
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We expect three further increases this year, taking base rates to 5.25-5.5 per cent by the autumn.
But lenders have been more conservative in their criteria, which should help mitigate affordability concerns.
Martin Beck – Chief Economic Adviser to EY ITEM Club
UNLESS May’s inflation figures produce a surprise, concern over prices should see a rise to 4.75 per cent.
The ingredients for an improvement means expectations of rates peaking close to six per cent look too pessimistic.
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Energy prices have been falling, as has eurozone inflation.
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Even if rates ease, the extent to which mortgages rates have already risen mean financial pressures on many and a fall in house prices.
Gabriella Dickens – Senior UK Economist at Pantheon Economics
THE recent strength of inflation and wage growth means the rate will almost certainly rise to 4.75 per cent.
But the Bank won’t want to push households to breaking point.
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Given this balancing act, we think the MPC won’t increase the Bank rate above 5 per cent.
The onus is on lenders to help by making it easier to lengthen mortgages, take a payment holiday or switch to interest-only for a while.
Victoria Scholar – Head of Investment at Interactive Investor
THE rate is expected to hit 4.75 per cent, but there is an outside chance that the Bank could carry out a more aggressive move to 5 per cent.
However, that is unlikely.
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The market is forecasting the rate to peak at 5.75 per cent, but it could be lower.
It all depends on how quickly inflation falls towards the 2 per cent target.
Direct support for mortgage holders is unlikely, but the Conservatives may bow to pressure.
Sanjay Raja – Chief UK Economist at Deutsche Bank Research
WE expect the Bank to lift the rate for a 13th consecutive time, taking it to 4.75 per cent.
We also expect it to go as high as 5.25 per cent by September, with the MPC making hikes through summer as it aims to temper excess inflation and strong wage growth.
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Mortgages have been stress-tested for higher rates.
Nevertheless, the Bank of England and Treasury will need to closely monitor any risks.
Simon French – Chief Economist at Panmure Gordon
THE Bank will inevitably raise UK interest rates by a further 0.25 per cent at this week’s meeting.
I think this will be the penultimate interest rate increase before the UK inflation picture gets materially better.
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A peak of 5 per cent in interest rates — while a big shock — is not disastrous for the economy.
The Government working with lenders to support those with mortgages has more merit than taxpayer support
DESPITE the mortgage woes, shoppers used cost-of-living pay rises in April to buy new summer wardrobes — boosting profit expectations at fashion retailer Next.
Sales are up by 9.3 per cent in the past seven weeks.
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But strong retail sales could suggest inflation is not easing, adding pressure on the Bank to lift interest rates.
Boohoo leading a revolt
FAST-fashion retailer Boohoo is launching an audacious boardroom sweep at scandal-hit Revolution Beauty.
The online retailer, which owns a 26.6 per cent stake in the cosmetics firm, has demanded a shareholder meeting to oust chairman Bob Holt and directors Derek Zissman and Elizabeth Lake.
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Boohoo wants retail veteran Alistair McGeorge, who recently led New Look, and its former finance chief Neil Catto in as new directors.
Mr Holt was appointed Revolution chief exec after founders Adam Minto and Tom Allsworth stepped down in the wake of an accounting scandal.
Accounts showed it had inflated profits by around £23million.
Shares in the firm have been suspended since September.
Boohoo said: “Boohoo believes a senior leadership team with the right retail, e-commerce and consumer brands experience is required.”
M&S cut in prices
MARKS & Spencer is cutting the price of 200 groceries as stores battle to keep cash-strapped shoppers.
The retailer said it was reducing the price of 70 family staples, such as beef mince, sausages and yoghurt, as well as posher foods including avocados and ciabattas.
It comes a day after Morrisons revealed that it was reducing 47 of its biggest sellers, including tomatoes and butter by 25 per cent.
