Around half of UK mortgage holders will face higher interest rates over the next three years, the Bank of England has warned, amid concerns over the potential impact of the imminent return of Donald Trump at the White House.
Its latest financial stability report – published twice a year – shows 4.4 million homes are expected to be refinanced at higher rates.
But he added that about a quarter of borrowers should benefit from lower rates, based on current market prices, with rates having fallen from the highs seen in 2023.
The central bank’s financial policy committee has also identified a future risk: that of a strengthening of trade barriers which could harm global growth.
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Although it did not directly refer Donald Trump’s warning about increasing US tariffs when he becomes president again in Januarythe report said such barriers would fuel uncertainty about inflation, potentially causing volatility in financial markets.
“A reduction in the degree of international political cooperation could hamper the authorities’ progress in improving the situation.
the resilience of the financial system and its ability to absorb future shocks,” the report said.
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The bank worries about the impact of Trump
The Bank of England did not directly mention Donald Trump today but hinted at the economic risks associated with his presidency.
The central bank echoed warnings that higher tariffs could hurt global economic growth and trigger inflation, adding that it could also create volatility in financial markets and increase borrowing costs for banks. businesses and consumers.
“Global fragmentation, namely a reduction in the degree of international trade and political cooperation, could have several consequences,” the Bank said.
It adds: “(This) could hamper the authorities’ progress in improving the resilience of the financial system and its ability to absorb future shocks.” »
Although in a hurry, Andrew Bailey was careful to avoid any political discussion on Donald Trump. He dropped several hints about how he feels.
In a speech this month at Mansion House, he urged policymakers to “remember the importance of openness.”
Asked at a news conference whether the Bank was specifically referring to Mr. Trump’s tariff warnings, Governor Andrew Bailey cautioned that it was “action that counts.”
The report discusses increasing global risks more generally and indicates that any sharp correction in financial markets could increase credit costs.
Looking specifically at the UK, Mr Bailey also told reporters that he saw no trade-off between financial stability and economic growth.
This 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 raised no concerns.
It also said financial stress among households and businesses remained resilient in the face of price shocks the economy has experienced since the end of the COVID pandemic.
But this indicates that the fight against inflation will continue to drag on.
The report was released amid low expectations for a third interest rate cut this year, when the bank’s rate-setting committee meets in a few weeks.
Only 13% of financial market participants expect a reduction to 4.5% on December 19.
Indeed, all the data the Bank relies on to judge whether a reduction in borrowing costs is appropriate contains red flags.
The flagship measure of inflation is again above the Monetary Policy Committee’s 2% target at 2.3%, after a sharp jump from 1.7% in October due to rising energy costs.
Other stubborn elements include the prices of services.
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Another stumbling block came from pace of wage growth which the Bank fears could stimulate demand in the economy and, therefore, price growth.
There has been no disagreement over the future path of rates, according to recent remarks from Bank policymakers.
All spoke of the need for a “progressive” approach.
This does not bode well for millions of new borrowers – and for those whose loans are tied to bank rates – even though arrangements for things like fixed-rate mortgages have been relaxed in line with the two rate cuts. interest announced by the Bank to date in 2024.
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Separate figures released earlier this morning by the Bank suggest confidence remains that borrowing costs are on a downward trajectory, as mortgage approvals and lending increased in October.
The number of mortgages approved was at its highest level since August 2022, the data showed.
However, a slight decline in consumer credit demand and higher savings rates also suggest continued caution amid the slowing economic outlook.
This is further proof of the caution of households in the run-up to the budget which, the government had warned, would be “tough”.