The dire economic forecasts come as the Bank prepares to raise interest rates tomorrow in a bid to tame out-of-control inflation, while sky-high gas prices threaten to push average energy bills above £3,600 a year by early 2023 . The majority of analysts now expect the Bank’s Monetary Policy Committee to vote on Thursday to raise the Bank’s key rate by 0.5 percentage points to 1.75 percent. Consumers are facing a double whammy on their living standards, with a rise in interest rates making mortgages more expensive for millions of homeowners, while prices for essential goods such as energy and food are rising far faster than wages. The Resolution Foundation, a think tank focused on living standards, said it was now “plausible” that inflation could rise to 15 percent – the highest level since 1980. Low- to middle-income families are likely to face disproportionately higher cost-of-living levels for the foreseeable future, the foundation said. He expects inflation to remain persistently high, despite signs that upward pressure on prices may be beginning to ease. Market prices for imported commodities, including oil and wheat, have fallen in recent months as inflation causes the global economy to slow sharply, reducing demand. However, this was more than offset by continued increases in wholesale gas prices caused by Russia’s war in Ukraine. Jack Leslie, senior economist at the Resolution Foundation, said the outlook for inflation was “very uncertain” and was largely driven by unpredictable gas prices. “While market prices for some key commodities – including oil, corn and wheat – have declined from their peaks earlier this year, these prices have not yet fed through to consumer costs and remain significantly higher than they were last year. January. “With natural gas prices continuing to reach record levels, both households and businesses will see large increases in their energy bills throughout the winter and into 2023. How long this high inflation will last is extremely uncertain, but the cost of living crisis looks set to last longer and is hitting households harder than previously expected.” In recent weeks, state-backed Russian energy giant Gazprom has cut gas supplies to Europe, sharply raising prices and causing a backlog in some German regions. Fears are growing that further disruption to supply prices will increase further this winter, plunging the continent into a deep recession as natural gas stocks run low. The Niesr think tank said it expected inflation to rise to an “astronomical” 11 percent and warned that the retail price index (RPI), used to set fares and student loans, was expected to reach 17.7 percent . Niesr warned that the spending power of household incomes will fall by 2.5 percent next year as prices stabilize “indefinitely at a higher level.” Real household incomes are projected to remain more than 7 percent below their pre-Covid trend after 2026. It came as the Organization for Economic Co-operation and Development (OECD) called on the UK government to restart suspended growth by boosting public and private investment. “Like other economies around the world, the UK economy faces a number of headwinds, with pre-existing structural challenges magnified by the pandemic and Russia’s war of aggression against Ukraine,” said OECD Secretary-General Mathias Cormann. “The key to stronger economic growth and better opportunities will be stronger productivity growth.” A rate hike by the Bank would add further to the financial squeeze, pushing up mortgage rates for the 20% of borrowers on tracker and variable deals. Many more first-time buyers and people re-mortgaging over the next year will also pay higher interest rates. Rightmove calculates that a 0.5 percentage point rise would mean new first-time buyers would see their monthly mortgage payments rise to over £1,000 a month. That would mean mortgage payments take up an average of 40 percent of gross pay, a level not seen since 2012. Average mortgage payments have already risen by a fifth this year to £976 a month, compared to £813 a month in January. Tim Bannister, Rightmove’s Housing Expert, said: “First-time buyers trying to get on the ladder are currently facing average monthly mortgage payments that are 20 per cent higher than at the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to overcome the hurdles to amass a large enough deposit. “A new record first-time buyer asking price of £224,943 means that a 10 per cent deposit on a first-time home buyer is now 57 per cent higher than it was ten years ago, while average wages have risen only by 31 per cent.”
