Keir Starmer recently expressed his disappointment in the UK’s growth figures but denied that his government’s budget was to blame for the recent increase in mortgage rates. Starmer emphasized that the budget was aimed at stabilizing the economy, which he believed was the crucial first step. He mentioned that interest rates were expected to decrease along with inflation.
Despite Starmer’s statements, several high street lenders have raised mortgage rates slightly due to expectations of higher inflation. Barclays, for example, has raised some fixed-rate deals by up to 0.56 percentage points. The Office for Budget Responsibility (OBR) also predicted an increase in inflation to 2.6% in 2025, partially due to the impact of budget measures.
Economists have noted that the higher forecast for inflation, resulting from increased government spending, has contributed to rising borrowing costs. Chancellor Rachel Reeves announced a significant increase in public spending to address public service issues and invest in infrastructure. This move is expected to lead to faster growth, higher inflation, and increased interest rates.
While the Bank of England is projected to continue reducing interest rates, the pace may be slower than initially anticipated following the budget announcement. Shadow Chancellor Mel Stride criticized Starmer for evading responsibility for the surge in mortgage rates, emphasizing that government decisions would have long-term consequences for mortgage holders.
The recent fluctuations in mortgage deals are relatively minor compared to the significant increase following a previous budget announcement. Economic experts attribute the rise in mortgage rates to various factors, including global economic trends influenced by policies such as those introduced by former US President Donald Trump.
Prime Minister Starmer acknowledged the unsatisfactory GDP growth figures and expressed a desire for improvement. He attributed the economic challenges to the need for increased investment in the country. Business groups have suggested that the prolonged period of uncertainty post-election and pre-budget announcement contributed to a slowdown in growth.
Bank of England Governor Andrew Bailey is set to address concerns about the budget’s impact on bank policy. Bailey recently commented on the economic effects of Brexit and called for closer ties with the EU. The global economic outlook has been clouded by factors such as the imposition of tariffs by the US under the Trump administration.
Overall, the debate surrounding the budget’s influence on mortgage rates reflects a complex interplay of domestic and international economic factors. While government policies play a role in shaping economic conditions, external forces and global trends also significantly impact interest rates and inflation levels.
