MORTGAGE holders will have breathed a sigh of relief this week after the Bank of England decided to hold interest rates steady at 0.25 per cent, marking a full year since they hit that all-time low.
The celebrations are likely to be shortlived, though, given the data the Bank based its decision on. Inflation has been an issue for UK consumers ever since the Brexit vote last year. and even though the figure fell back from 2.9 per cent in June to 2.6 per cent in July, the Monetary Policy Committee predicts it will hit three per cent in October, a full percentage point above the Bank’s two per cent target.
While that could be seen as a good enough reason for rates to nudge up - and two MPC members were in favour of a rise - it was trumped by the prospect of more Brexit-related bad news.
Though the bank said the rise in inflation “reflects entirely the effects of the referendum-related falls in sterling”, it added that attempting to offset that “would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth”.
“Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years,” it said.
The net effect on individuals is that we are all going to get a little bit poorer in the months ahead as the value of our savings continues to erode and the cost of living continues to rise.
British Gas is already doing its bit to drive inflation higher, with its standard electricity tariff due to increase by 12.5 per cent in a month’s time. This, said Gocompare energy spokesman Ben Wilson, will add £76 a year to the average bill, bringing “a tasty £235 million boost to British Gas’s income at the expense of loyal bill payers” in the process.
As Big Six energy companies having a habit of following each other’s lead, perhaps the prospect of rising mortgage repayments is the least of our worries.
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