Inflation report 'bad news' for mortgage holders

The government's latest inflation report spells bad news for people paying off mortgages, the Bank of England's chief economist has confirmed.

Governor Mervyn King revealed that inflation is now expected to reach three per cent by the end of the year, making it all but impossible for the Bank to justify pushing through further interest rate relief.

Recent rate cuts had offered homeowners some sorely needed breathing space by lowering repayments on tracker mortgages, but hopes for a volley of further cuts now appear to have been dashed given the latest figures.

Although lower interest rates offer relief to borrowers, they also increase the spending power of consumers and businesses - thereby shoring up demand and further worsening inflationary pressures on the economy.

"In the central projection, inflation rises sharply from 2.2 per cent to around the level at which I would be required to write an open letter to the Chancellor," Mr King ominously predicted.

The Bank has passed through two interest rate cuts in the past three months, bringing the base rate down from 5.75 to 5.25 per cent.

Published 14th February, 2008

© 2008 Estates IT Limited

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