Today has been dubbed Black Thursday as Britons are hit with a triple jump in interest rates, inflation and energy bills. 4 Families are facing a Black Thursday of financial misery today with a triple whammy of interest rate hikes, soaring energy bills and runaway inflationCredit: Getty 4 Inflation is forecast to reach 15% – pushing up the price of fuel and food 4 Energy regulator Ofgem is today set to lift its price cap to £3,615 in October, with a further rise of £250 in January and a promise of reviews every three months 4 Increases in energy bills will be more frequent, Ofgem said The Bank of England also warned that inflation would hit 13% – the highest in 42 years. The 0.5 percentage point jump in interest rates is the biggest in 27 years. The rise in interest rates will increase mortgage payments by an average of £650 a year. The dire economic conditions will see real household incomes fall for two years in a row, the first time this has happened since records began in the 1960s. They will fall by 1.5% this year and 2.25% next . However, the recession will at least be shallower than the 2008 crash, with GDP falling as much as 2.1% from its peak. Bank officials said the depth of the decline is more comparable to the recession of the early 1990s. Unemployment is forecast to start rising again next year. An economist predicted last night that the cost of living crisis is likely to last longer and hit harder than expected, while analysts believe the spate of higher bills will leave one in five households without savings by 2024. More pressure has been put on households as energy regulator Ofgem confirmed today that the price cap will be reviewed every three months, instead of six. It is estimated that the cap will rise to £3,615 in October and a further increase of £250 in January. Ofgem is expected to reveal the exact amount the bill will increase at the end of August, with the next ones coming into effect from October 1. Jack Leslie, senior economist at think-tank Resolution, said: “With gas prices continuing to reach record levels, both households and businesses will see big rises in their energy bills over the winter and 2023. “How long this high inflation will last is highly uncertain, but the cost of living crisis looks set to last longer and hit households harder than previously expected.”
A ticking time bomb
There were also fears that many of the UK’s nine million mortgage payers – 6.8 million of them in England – would struggle to cope with the 0.5 percentage point rise in interest rates. It could add around £74 a month — or £888 a year — to a standard variable rate mortgage. UK mortgage rates rose at their fastest rate in a decade in the six months to May. The latest jump will put even more mortgage payers long accustomed to low interest rates in serious trouble. Greg Marsh, chief executive of cost-of-living prediction group nous.co, said: “Lenders can and should do what they can to help. “The last thing they need is a flood of damaging and costly foreclosures because borrowers can’t afford the new repayments. Concerns were also growing about the millions of owner-occupiers who could not switch mortgages due to expire in the next two years unless they pay punitive exit fees. Mother-of-two Lydia Joseph, a researcher from Faversham, Kent, pays £1,718 a month on a mortgage fixed at 2%. She says the only way she can get out of her current deal is to raise £12,000 up front. He said: “This would wipe out all our savings overnight. “The whole thing feels like I’m pointed down the barrel of a gun. “But if I don’t lose £12,000 now, my monthly mortgage payments next year could be more than half my take-home pay. “This situation hasn’t really occurred in the last two decades because we’ve had falling or very low interest rates.”
Why are interest rates rising and will this help inflation?
Borrowing costs rise when the prime rate rises. In turn, this reduces people’s disposable income, which in turn reduces demand, slowing price increases.
