Bank of England issues mortgage rate warning to 4.4 million homes and sounds Trump trade alarm
Around half the UK’s mortgage holders face paying higher rates over the next three years, the Bank of England has warned, while sounding alarm over the potential impact of Donald Trump’s looming return to the White House.
Its latest financial stability report – released twice a year – showed 4.4 million homes were set to refinance at higher rates.
But it added that around a quarter of borrowers were expected to benefit from lower rates, based on current market pricing, as rates have dropped from the highs seen in 2023.
The central bank’s financial policy committee also identified a risk ahead – that higher trade barriers could hit global growth.
While it did not directly reference Donald Trump’s warning about raising US trade tariffs when he becomes president again in January, the report said such barriers would feed uncertainty about inflation, potentially causing volatility in financial markets.
“A reduction in the degree of international policy cooperation could hinder progress by authorities in improving
the resilience of the financial system and its ability to absorb future shocks,” the report said.
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Asked at a news conference whether the Bank was specifically referring to Mr Trump’s trade tariff warnings, governor Andrew Bailey cautioned that it was “the doing that counts”.
The report spoke of raised global risks more generally and said that any sharp financial market correction could raise credit costs.
When it came to the UK specifically, Mr Bailey also told reporters he saw no trade-off between financial stability and economic growth.
That was after chancellor Rachel Reeves said regulators had gone too far in discouraging risk-taking.
The Bank said its latest stress tests of the banking system had raised no concerns.
It also said that financial stress among households and businesses remained resilient in the face of the price shocks the economy had experienced since the end of the COVID pandemic.
But it signalled that the battle against inflation would continue to drag on.
The report was released against a backdrop of weak expectations for a third interest rate cut this year when the Bank’s rate-setting committee meets in a few weeks’ time.
Just 13% of financial market participants expect a reduction to 4.5% on 19 December.
That is because all the data the Bank relies on to judge whether a cut to borrowing costs is appropriate contains red flags.
The headline measure of inflation is back above the monetary policy committee’s 2% target at 2.3%, following a sharp leap from 1.7% in October due to rising energy costs.
Some other stubborn elements include prices for services.
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Another stumbling block has come from the pace of wage growth which the Bank fears will stoke demand in the economy, and price growth as a result.
There have been no dissenters on the future path for rates, if recent remarks by Bank rate-setters are anything to go by.
All have spoken of the need for a “gradual” approach.
That does not bode well for millions of new borrowers – and those whose loans are tied to Bank rates – though deals for things like fixed-rate mortgages have eased in line with the two interest rate cuts announced by the Bank to date in 2024.
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Separate figures released earlier in the morning by the Bank suggested confidence remained that borrowing costs were on a downward path, however, as mortgage approvals and lending rose in October.
The number of mortgages approved was at its highest level since August 2022, the data showed.
However, a slight drop in demand for consumer credit and higher savings rates also suggested continued caution over the slowing economic outlook.
It is further evidence of caution among households in the run-up to the budget which, the government had warned, would be “tough”.
An amber warning has been issued for snow in a part of the UK, likely to cause travel delays and “stranding some vehicles and passengers”.
The warning, which covers south west England, also warns some rural communities could become cut off and is in place until 2pm this evening.
Pic: Met Office
There is also a yellow weather warning for snow covering the southern counties of England until midnight on Wednesday.
The warning stretches from Kent to Cornwall and up to south London and the Met Office said between 2cm and 5cm of snow could accumulate fairly widely, with as much as 10cm over higher ground.
This week is expected to see the coldest nights of the year, with temperatures potentially reaching -14C on Wednesday night and -16C on Thursday night, both in the North East of England and Scotland, the Met Office said.
Weather warnings issued on Tuesday for snow and ice covering the parts of Wales, the North West of England, west and northern parts of Scotland as well as Northern Ireland will remain in place until midnight tomorrow.
The forecaster said some roads and railways are likely to be affected and there could be icy patches on untreated roads.
Pics: AP
Meanwhile the Environment Agency has said at least 300 properties have flooded across England since New Year’s Eve. It estimates more than 41,000 properties have been protected.
Heavy rainfall over the New Year caused significant river and surface water flooding across the North West of England and Yorkshire and snowmelt has brought further disruption to parts of England, particularly the Midlands, the agency said.
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Floods minister Emma Hardy said: “My sympathies go out to the people, businesses and communities impacted by the recent flooding across the country.
“I want to express my heartfelt thanks for the vital work that the Environment Agency and emergency services are doing to keep people safe. People must continue to follow their advice and sign up for flood warnings.”
Flood warnings
Some 100 flood warnings were in force across England on Wednesday, with people urged to remain vigilant over the coming days.
A danger-to-life warning was issued on Tuesday morning for the River Soar near Barrow upon Soar, Leicestershire, but was later removed.
People living in caravan parks in the area were urged by the Environment Agency to act, with a large-scale evacuation needed to save lives.
Firefighters have rescued dozens of people across Leicestershire since Monday, Leicestershire Fire and Rescue Service said.
Hundreds of schools were closed across the UK, with road and rail links blocked, as Manchester, Bristol and Liverpool John Lennon airports suspended flights because of the conditions.
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