The Institute for Fiscal Studies (IFS), a well-respected think tank, warned that rising rates would cause 1.4 million homeowners with mortgages to have a loss in disposable income of more than 20%.
Karen Ward, a member of chancellor Jeremy Hunt’s economic advisory board, argued that the Bank had “been too hesitant” in raising interest rates thus far and urged it to “create a recession” to rein in rising prices.
“It’s only when businesses are fearful about the future that they would consider saying, “Well, maybe I won’t put through that price rise,” or when employees are feeling a little less certain about their jobs, they will consider, “Oh, I won’t press my boss for that higher salary,” she said on the BBC’s Today programme.
However, Andrew Selley, chief executive of wholesale food supplier Bidfood UK, claimed that raising interest rates was “not the right thing to do”.
It is choking off the economy. In order for firms to weather the storm, they need to look at alternative forms of support, he said.
Chancellor Jeremy Hunt appeared to back further interest rate rises saying it would not “hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy.”
The Bank is responsible for managing inflation at 2%, but it is currently four times higher. Since the end of 2021, interest rates have been rising gradually. Since borrowing money becomes more expensive as a result, people should ideally borrow less and spend less, which should slow the rate of price increases.
A third of UK residents who own a home will see significant rises in their monthly payments when fixed-term agreements expire. As credit requirements tighten, first-time buyers run the risk of being priced out of the market.
On Wednesday, the average rate for a two-year fixed mortgage was 6.15%, while the rate for a five-year mortgage was 5.79%.
