Inflation report warns of further mortgage rate rise

| August 9, 2007 | 0 Comments

The Bank of England has published its latest quarterly inflation report, leading analysts to predict that homeowners will be paying mortgage interest based on a 6% base rate by the end of 2007.

The report makes the case for further increases in the base rate, to check inflation which is still above the Chancellor’s 2% target.

The Bank sees the possibility of higher oil prices, and their knock-on effect on the Consumer Prices Index (CPI), increasing the current rate of inflation.

It is also taking into account predictions of higher food prices which are likely to occur as the result of crop damage caused by this summer’s flooding.

The cost of borrowing is at its highest since March 2001, at 5.75%, and the impact of this on home owners is already evident, amid reports of a growing number of repossessions.

A further rise in the base rate would be particularly unfortunate for the thousands of borrowers coming off fixed-term mortgages taken out when rates were at their lowest levels.

The Bank has been struggling to bring inflation back on target since March of this year, when the CPI measure of inflation reached 3.1%.

The inflation rate has decreased since then, largely as a result of lower energy bills, but consumer spending has hardly been touched by the base rate increases of the past 12 months.

The word in the City is that the rates will peak at 6% in early 2008, following which there will be a gradual decrease throughout 2008 and 2009.

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