Proactive Investors -
- FTSE 100 follows US and Asia higher, up 23 points
- Tesco (LON:TSCO) sees signs of easing inflationary pressures
- Mortgage rates continue to rise, heading towards 6%
Consumers expectations of inflation ease
Consumers expectations for future inflation rates in the UK have eased, according to research from the Bank of England, but criticism of the central bank hit an all-time high.
The BoE's quarterly inflation attitudes survey showed expectations for inflation in the coming 12 months fell to 3.5% from 3.9% in February.
Consumers see inflation falling to 2.6% in two years time and 3% on a five-year time frame.
First bit of encouraging inflation data for the Bank of England for some time. 18-month low in inflation expectations. Wont impact the June MPC, nor I expect the August MPC for +25bp moves - but calls into question the three more +25bp moves financial markets currently see. pic.twitter.com/YDOuQd5h0m— Simon French (@shjfrench) June 16, 2023
The survey was conducted in mid-May, before recent inflation and jobs data sent expectations in financial markets for more BoE interest rate hikes sharply higher - with a big knock-on effect in mortgage costs.
But satisfaction with the BoE's actions in dealing with inflation fell to negative 13% from negative 4% in February 2023.
Sterling jumps as central banks diverge
Sterling has continued its recent rise against the dollar taking it close to US$1.28 as rate expectations in the UK and US diverge.
The pound is up 1.7% this week and 5.9% in the year to date.
The Bank of England is expected to increase interest rates by at least 25 basis point next week and rates are expected to peak at 5.75% as it continues to battle inflation.
Interest rates in Europe are also set to rise further after the ECB's hawkish statement yesterday.
But across the pond, investors are betting US rates are at, or close to, their peak. The Federal Reserve held rates steady this week although it did suggest two more rate hikes were likely before the end of the year.
However, equity market advanced strongly in the US on Thursday on hopes the continued falls in inflation, and a slowing economy, would prompt the Fed to leave rates unchanged.
Mortgage rates head towards 6%, savers face wipe out claims IFS
UK mortgage rates are heading towards 6% as the squeeze on borrowers tightens, with one think tank predicting 3mln homeowners risk having their savings wiped out.
The average rate on a two-year fixed mortgages rose to 5.92% yesterday, up from 5.9% on Wednesday, and 5.26% at the start of last month.
Average five-year fixed rate mortgage rates hit 5.56%, up from 5.54% 24 hours earlier and 4.97% at the beginning of May.
Analysis from the Institute for Fiscal Studies said the higher rates would see 2.9mln middle income mortgage holders exhaust their savings as well as borrow cash to help make ends meet.
On Monday, the Centre for Economics and Business Research estimated homeowners will have to spend nearly an extra £9bn in interest over 2023 and 2024.
High street lenders have scrambled to keep up with the rapidly changing rate landscape. Nationwide has become the latest to increase its mortgage rates, lifting its new fixed rates by up to 0.7 percentage points.
In the last week, HSBC (LON:HSBA) has pulled mortgage deals twice while Santander (BME:SAN) was also forced to temporarily withdraw products while it repriced offers.
Atom Bank said today it was also raising rates by between 0.25% to 0.6% on certain products.