Soaring mortgages to force families to cut spending by £11bn per year, Labour reveals

Wednesday, 20 September 2023 22:30

Bank of England forecasts uncovered by Labour reveal the Tory mortgage bombshell will force families to cut spending by an eye-watering £11 billion by the end of 2025. The figures, buried in the small print of the Bank of England’s latest economic forecast, show that the squeeze on household spending is up by 60 per cent on previous forecasts. The forecast confirms that market expectations of interest rates have risen much faster in the UK than the US or Europe...Request free trial

Bank of England forecasts uncovered by Labour reveal the Tory mortgage bombshell will force families to cut spending by an eye-watering £11 billion by the end of 2025.

The figures, buried in the small print of the Bank of England’s latest economic forecast, show that the squeeze on household spending is up by 60 per cent on previous forecasts.

The forecast confirms that market expectations of interest rates have risen much faster in the UK than the US or Europe since May due to persistently high inflation. Food price inflation is also “likely to remain high throughout 2023” and will still be around 10 per cent at the end of the year.

Approximately half of households with a mortgage are estimated to have faced an increase in monthly repayments since rates started to rise in late 2021, with four million more households due to come off fixed rates by the end of 2026.

The figures come ahead of the Bank of England’s Monetary Policy Committee next meeting on Thursday 21 September.

Rishi Sunak recently told the country to “hold our nerve” over rocketing costs and the out of touch Prime Minister also patronised the public in August by claiming “no-one quite understands the scale of what we’ve done” on energy bills.

Darren Jones MP, Labour’s Shadow Chief Secretary to the Treasury, said:

“These figures expose the reality of the Tory mortgage bombshell that has left families worse off.

"Month after month families are being hit with higher mortgage repayments because of 13 years of chaos and instability under a Conservative government that crashed the economy.

“Labour’s plan for the economy will grow our economy so we can boost wages, bring down bills and make working people in all parts of the country better off.”

Ends

Notes:

In August, the Bank of England has upgraded its projection for how much people are having to reduce their spending by because of higher mortgage rates by 60 per cent - from 0.5 per cent previously, to 0.8 per cent:
https://www.bankofengland.co.uk/monetary-policy-report/2023/august-2023 - section 2.3.

Bank of England forecast reduction in spending applied to the last four quarters of household consumption data according to ONS series ABJR+HAYO – which totals £1.4 trillion in 2022 (latest data). £11bn = 0.8%*£1.4tr.

The rise in market expectations of interest rates in the UK since May “has been much larger than in the US and euro area”, due to “indicators of inflation persistence” (section 2.2 of BoE report).

Food price inflation is “likely to remain high throughout 2023” and will still be around 10 per cent at the end of the year (section 2.6 of BoE report).