UK Mortgage Rates Jump After Inflation Shock; retail sales grow faster than expected – business live | Business

Full story: Prepare for mortgage rates over 5%…

Miles Brignall

Households looking for a new mortgage deal have been warned to expect fixed rate deals of more than 5% in the coming weeks, after Wednesday’s inflation figures sent money markets back in the tournament.

Nick Mendes, technical head of mortgages at brokerage John Charcol, said on Thursday he doubted there were two-year fixed-rate mortgages and likely few five-year transactions below 5% in coming weeks as lenders are forced to reprice their mortgages on the rise.

Hours after his comments, one of the UK’s biggest lenders, Nationwide, said it was raising some fixed and tracker rates by up to 0.45%, starting Friday.

UK mortgage lenders are raising their borrowing rates as higher-than-expected UK inflation drives up the interest rate on UK government debt.

Nationally, the UK’s biggest building society is raising some of its mortgage rates for new borrowing from today, saying it will ensure its rates ‘remain sustainable’ in the economic environment current.

Other lenders have also tried to raise mortgage rates or temporarily pull products from the market to reprice them.

Rate increases of up to 0.45 percentage points only affect customers taking out a new mortgage contract.

The move comes as the yield (or interest rate) on UK government bonds hits its highest level since last year’s mini-budget crisis.

The two-year bond yield, which is used to price fixed-rate mortgages, closed at 4.53% last night, down from 4% at the end of last week.

This is due to Wednesday’s disappointing inflation report, which showed prices were 8.7% higher in April than a year ago – higher than expected. This should lead to several more interest rate hikes from the Bank of England.

Money markets expect UK interest rates to hit 5.5% by November, from 4.5% today, amid choppy bond market trading.

Hello and welcome to our ongoing coverage of business, financial markets and the global economy.

UK retail sales rose last month, and more than expected, as the gloomy weather that hit spending in March eased and people took advantage of the Easter holiday.

Retail sales volumes are estimated to have risen 0.5% in April, according to new figures from the Office for National Statistics. This follows a 1.2% plunge in March, when wet and windy conditions kept shoppers off the high street.

Sales at “non-food stores” such as department stores jumped 1%, after falling 1.8% in March. The ONS says there have been “strong sales in watch and jewelery and sports equipment stores”.

This morning’s data also shows the impact of the cost of living crisis on households. Compared to April 2020, sales volumes fell 3%, but retail sales value increased 4.7%. People spent more, to get less, because of high inflation.

Also coming today

Investors are hoping a deal to lift the US debt ceiling, averting a catastrophic default, is near.

Last night, Joe Biden and Republican lawmakers looked set to strike a deal to cut spending and raise the debt ceiling.

The deal negotiators are considering would raise the government’s debt ceiling to $31.4 billion for two years while capping spending on most items, a U.S. official told Reuters. It would also increase funding for discretionary spending for military and veterans while essentially holding non-defense discretionary spending at current-year levels, the official said.

Agenda

• 7am BST: UK retail sales for April

• 7.45am BST: French consumer confidence for May

• 1.30pm BST: US PCE inflation report

• 15:00 BST: University of Michigan US consumer confidence report