At last, we see the beginnings of an economic recovery.
Inflation figures announced this week show price rises have dropped to 8.5% (from over 10% for the last few months), whilst economic growth is now predicted to be positive. The IMF has revised its estimates from a drop of 0.3% to a rise of 0.4% this year. A small change, but one that is encouraging. Bear in mind that for a mature economy like ours, with relatively high standards of living, a growth of around 2% would be quite exciting.
But while things are looking better, inflation is still above the 2% target and interest rates might still rise again. Financial markets expect the Bank of England to potentially rise rates by nearly a further 1% to just under 5.5%. This is worrying to those with mortgages. Even those with fixed rates will see them, at some point, being due for renewal. A typical household, with a £250,000, 25 year mortgage, with a disposable monthly income of around £2,500 will see their post mortgage monthly free cash drop by around 3/5ths to a little over £600 if their mortgage rate is renewed from 1% to 5%. That is a very big deal.
There can be no denying that we are not through the woods yet, despite the more positive appraisal by the IMF. But, whilst the markets expect interest rates to continue to rise in the short term, they are expected to come down again in the longer term. Once inflation is back to its required trend rate (2%), and the economy is growing at a reasonable and stable rate, interest rates will settle lower than they are today.
So the government must do the right thing. It has to be responsible with taxpayers’ money. We all want taxes to fall, but it must be done at the right time. We all want the government to be responsible with our money, and that is why we need to tackle the burden on our public finance affected by both illegal and legal migration. That is why we have brought in measures to limit the number of dependents following overseas students into the UK, and why it is still a huge priority to stop the illegal migration coming over the Chanel.
But it is also why the government has been helping households through various crises – from Covid through to support with fuel prices.
