Cabinet ministers believe that the Government is being unfairly held accountable for increased mortgage rateswith senior figures privately blaming the Bank of England (BoE) for the increases.
Ministers privately accuse the BoE of being too slow to tackle inflation. They affirm that the alleged slowness has already led to significant increases in mortgage costs in anticipation of an expected rise in interest rates next month, when several Cabinet members said they believed the BoE would effectively make up for lost time.
Since Truss entered Downing Street, ministers have refrained even from privately criticizing the BoE. The prime minister was accused of endangering his independence after suggesting during the Tory leadership campaign that he could have done more to tackle inflation earlier in the year and promising a review of his formal mandate from the Government. Kwasi Kwarteng, who later became chancellor, pointed out that the BoE did not consistently meet its mandated target of keeping inflation at 2 percent.
‘He has not set the rates as he should’
But, amid rising mortgage rates and an expected further rise in interest rates next month to tackle inflation, a cabinet member made it clear that ministers had ongoing concerns, telling The Telegraph: “The Bank of England has not raised interest rates. as it should.” A second cabinet minister voiced similar criticism, noting that the BoE’s gradual interest rate hike since the start of this year had been significantly outpaced by increases in countries such as the US.
A third cabinet source also said “the Bank of England was behind schedule” in raising interest rates, raising concerns that its base rate increases since January had been too small, meaning it is now More drastic measures are likely to be taken when the Monetary Policy Committee (MPC) meets on November 3.
The cost of a five-year fixed-rate mortgage topped 6 percent for the first time in more than a decade after last month’s mini-budget. Ministers are worried that Mrs Truss will be blamed entirely for the further rises in mortgage rates.
On Saturday, a YouGov poll found that more than half (52 per cent) of voters already blame the government for rising mortgage costs, with only 5 per cent blaming the BoE.
The BoE is expected to raise rates at its next meeting in November by as much as one percentage point.
A government source said: “The hope is that we are not blamed. We have to keep pointing to international benchmarks like the Fed. All rich countries face the same problems, if not worse than Britain, in inflation, interest rates, fiscal easing, monetary policy and lack of productivity.” US mortgage rates rose to a 16-year high of 6.75 percent last week.
He fears that opposition parties will capitalize
The ministers fear that the opposition parties will capitalize on the increases. Last night, Labor stated that one in four households with mortgages will experience a jump in payments. According to Labor’s analysis of official data, homeowners exiting two-year fixed-term mortgages are expected to pay an average of £500 more per month.
Writing for The Telegraph, Lisa Nandy, the shadow housing secretary, said the government had “sacrificed homeowners” who had been hit with a “conservative premium to pay off their mortgages”. She insisted that Labor is now “the homeownership party”.
The BoE raised interest rates in 0.25 percentage point increments between December and July before implementing 0.5 percentage point increases in August and September, resulting in a current base rate of 2.25 percent.
Meanwhile, the US Federal Reserve, commonly known as the Fed, imposed three 0.75-point hikes, leading to interest rates of between 3 and 3.25 percent.
Some senior government figures believe the US bank is likely to lower the rate of increase next month after the midterm elections. As the gap between US and UK interest rates narrows, the pound is likely to strengthen against the dollar, a government source said.
BoE Governor Andrew Bailey denied the Bank was slow to respond, saying: “We don’t make policy with the benefit of hindsight. I would challenge anyone sitting here a year, two years ago to say that there will be a war in Ukraine and it will have this effect on inflation.”
But Catherine Mann, a member of the MPC, expressed concern “that the gradual pace of the bank rate increase has not tempered expectations sufficiently”.