UK mortgage rates jump after inflation shock; retail sales rise faster than expected – business live | Business

Full story: Brace for 5%-plus mortgage rates….

Miles Brignall

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

Nick Mendes, the mortgage technical manager at the broker John Charcol, said on Thursday that he doubted there would be any two-year fixed-rate mortgages and probably few five-year deals priced at less than 5% in the coming weeks, as lenders are forced to reprice their mortgages upwards.

Within hours of his comments, one of the UK’s biggest lenders, Nationwide, said it was increasing selected fixed and tracker rates by up to 0.45%, from Friday.

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

Nationwide, the UK’s biggest building society is increasing some of its mortgage rates for new borrowing from today, saying this will ensure its rates “remain sustainable” in the current economic environment.

Other lenders have also been scrambling to raise mortgage rates, or temporarily taking products off the market to reprice them.

The rate increases, of up to 0.45 percentage points, only affect customers taking out a new mortgage deal.

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

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

This is being driven by Wednesday’s disappointing inflation report, which showed prices were 8.7% higher in April than a year ago – higher than hoped. That is expected to prompt several more interest rate rises from the Bank of England.

The money markets are predicting the UK interest rates will hit 5.5% by November, up from 4.5% today, amid choppy trading in the bond markets.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

British retail sales picked up last month, and by more than expected, as the grim weather which hit spending in March abated and people enjoyed the Easter holidays.

Retail sales volumes are estimated to have risen by 0.5% in April, new figures from the Office from National Statistics show. That follows a fall of 1.2% in March, when wet and windy conditions kept shoppers off the high street.

Sales at “non-food stores” such as department stores jumped by 1%, following a fall of 1.8% in March. The ONS says there were “strong sales in watches and jewellery, and sports equipment stores”.

This morning’s data also shows the impact of the cost of living crisis on households. Compared with April 2020, sales volumes dropped by 3% – but the value of retail sales rose by 4.7%. People spent more, to get less stuff, due to high inflation.

Also coming up today

Investors are hoping that a deal to lift the US debt ceiling, avoiding a catastrophic default, is close.

Last night, Joe Biden and Republican lawmakers appeared to be nearing a deal to cut spending and raise the debt limit.

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

The agenda

• 7am BST: UK retail sales for April

• 7.45am BST: French consumer confidence for May

• 1.30pm BST: US PCE inflation report

• 3pm BST: University of Michigan’s US consumer confidence report