Further base rate rises expected as core inflation rises to 6.5%

The consumer price inflation rate increased to 6.5% in May, surpassing the April result of 6.2%, indicating that further base rate rises may happen to keep inflation in check.

This is the highest inflation rate since November 1991 when it was also 6.5%.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said:

“We’ve had more bad news on the core inflation front, after it rose again in May.

“This is likely to fuel rate expectations even further and mean even more alarming mortgage rates.

“As a result, some would-be buyers will be pushed out of the market, dampening demand.

“At the same time, remortgagers will face alarming hikes in their repayments, raising the threat of forced sales, as people can no longer keep up with repayments.

“It may well mean we see more monthly falls – feeding through into annual declines as we go through the summer.”

Yesterday it emerged that house price growth has fallen back to 3.5% in the year to April.

Coles added:

“Inflation figures released last month started the rot, with core inflation rising in April, which convinced the market that rates would need to be higher for longer.

“This was priced into fixed rate mortgages, which started to climb.

“Then, last week, jobs data added insult to injury, with wage inflation of 7.2%.

“This raised concerns that higher wages would push prices up even further, which would mean interest rates might have to increase again.

“As a result, mortgage rates surged again – pushing through 6% for a two-year fixed rate.”

She went on to say the one thing the UK has in its favour is a robust labour market, with the employment rate remaining high.

However, Coles said:

“Unfortunately, the higher that the Bank of England raises rates, the more it increases the risk of recession, which could mean jobs become increasingly insecure, which would take an even more serious toll on the market.”

Kindly shared by Property Wire

Main article photo courtesy of Pixabay