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Urgent action needed to combat growing cost of living crisis, as further interest rate rises loom

The escalating cost of living crisis in the UK is taking a massive toll on various aspects of daily life, particularly the prices of essential goods like fresh produce in supermarkets. A leading economist has drawn attention to this issue, emphasising the need for urgent action.

With the recent 0.5 percentage point increase in the base rate to 5 percent, implemented to rein in inflation, many UK residents, especially mortgage-holders, are already grappling with rising loan repayments. However, it appears that further rate hikes may be on the horizon.

Financial markets anticipate that the base rate could exceed 6 percent by the end of the year. Such a development intensifies concerns about the already strained UK economy and the ability of households to manage their budgets, especially when it comes to purchasing groceries.

The burden on consumers becomes even more apparent when we consider recent trends. The average cost of fixed-rate mortgages for a five-year term has already breached the 6 percent mark, marking the first time since November that rates have reached such heights.

Experts caution that fixed-rate deals could surge to 7 percent during the summer, compounding the challenges faced by consumers.

According to financial data experts Moneyfacts, typical five-year home loans have experienced a slight increase from 5.97 percent to 6.01 percent, while two-year fixed-rate mortgages have risen from 6.42 percent to 6.47 percent.

Amidst these alarming developments, concerns are mounting regarding the approach of the Bank of England. Some experts argue that relying on "out-of-control" interest rates to tame inflation may have adverse consequences, potentially pushing the UK economy into a recession. The economist previously mentioned predicts an increasingly likely hard landing for the UK economy, although their central forecast suggests a more moderate peak rate of 5.75 percent in November.

The Organisation for Economic Co-operation and Development has identified the UK as the only G7 nation currently grappling with rising inflation. Moreover, financial institution JP Morgan has issued a warning, highlighting that surging borrowing costs could significantly impact business confidence and contribute to a rise in unemployment.

The situation becomes even bleaker when we consider the impact on household finances. The National Institute of Economic and Social Research estimates that higher mortgage payments could result in approximately 1.2 million households facing insolvency this year.

Given the severity of the situation, there is growing scrutiny of government actions. During an appearance before Members of Parliament on the liaison committee, Rishi Sunak declined to provide assurance regarding the achievement of his target to halve inflation by the end of the year.

Nevertheless, he pledged to deploy every possible measure to tackle this pressing issue, including the rising costs of fresh produce in supermarkets, which directly affect household budgets.


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