Homeowners are being warned that they face two possible further interest rate hikes this summer.
Economists sounded the alarm that the Bank of England’s Monetary Policy Committee could be forced to hike rates from 4.5% in June, then possibly again within months, in a bid to further reduce inflation, which dropped to 8.7% in April from 10.1% in March.
While the drop below 10% was welcome, it was less than the City was expecting.
Core inflation (which excludes energy, food, alcohol and tobacco) actually rose by 6.% in the 12 months to April 2023, up from 6.2 per cent in March, which is the highest rate since March 1992.
Paul Dales, chief UK economist at Capital Economics, added: “With inflation proving stickier than the Bank expected, it now seems all-but certain that the Bank will raise interest rates from 4.50 per cent to 4.75 per cent in June and perhaps a bit further in the months after.”
Food and non-alcoholic beverage prices continued to rise in April, at an eye-watering rate of 19.1%, down marginally from 19.2% in March.
James Smith, research director at the Resolution Foundation think tank, said: “The cost-of-living crisis is evolving not ending with surging food prices now taking centre stage.
“Surging food prices are particularly painful for low-income families, three-in-five of whom are already reporting that they are having to cut back on food and other essentials.”
The official figures came a day after the International Monetary Fund warned that interest rates in Britain would likely have to rise further from 4.5 per cent and “remain high for longer” to get a firm grip on inflation.
The Bank of England has raised interest rates 12 times since December 2021 in an attempt to keep price rises, or inflation, under control.
A typical tracker mortgage customer is now paying about £417 more a month while those on a variable rate have seen their costs rise by £266.
Data released on Wednesday shows inflation slowed to 8.7% in the year to April but remains higher than some economists predicted.
It has prompted expectations of a further increase in borrowing costs when the Bank of England’s rate-setting Monetary Policy Committee (MPC) meets in June.
Andrew Montlake, managing director at mortgage brokers Coreco, said: “While on the face of it we have seen a fall in inflation back down to single figures, it is not by quite as much as expected.
He added: “What is more, the important underlying inflation figure has proved to be stickier than envisaged. This has led to a reaction from the markets as they believe the Bank of England may now continue with their policy of rate rises.”
Sushil Wadhwani, a former member of the MPC who is now on Chancellor Jeremy Hunt’s Economic Advisory Council, said markets have indicated interest rates could peak around 5.5%.
He said a lot people are on fixed rate mortgages “and these haven’t adjusted yet”.
“That’s an adjustment that’s yet to come and it’s deeply worrying for all of us,” he added.
Daily news email from EYE
Enter your email below to receive the latest news each morning direct to your inbox.