Keir Starmer denies budget to blame for rise in mortgage rates

Keir Starmer admitted that he was let down by the UK’s growth statistics released last week, but he rejected the idea that his government’s budget was to blame for the recent increase in mortgage rates.

The prime minister mentioned to reporters on the way to the G20 summit in Rio: “We have worked on the budget to stabilize the economy, and I believe this was a crucial initial move.”

"Consequently, predictions indicate that interest rates and inflation will decrease, as reflected in the recent budget figures," he stated, noting that while mortgage rates are determined by individual banks, the overall trend in interest rates is downward.

Several major lenders have recently raised their mortgage rates slightly due to predictions of increased inflation. For example, Barclays has raised some of its fixed-rate offers by up to 0.56 percentage points.

In the projections released with last month's budget, the independent Office for Budget Responsibility (OBR) indicated that it anticipates inflation will rise to 2.6% by 2025, which they attribute in part to both the direct and indirect effects of the budget initiatives.

Economists indicate that the increased inflation prediction, driven by government spending that exceeded expectations, is one reason why borrowing costs have risen.

Chancellor Rachel Reeves revealed in her budget an increase of £70 billion in government spending aimed at repairing deteriorating public services and enhancing infrastructure.

"It's a significant relaxation, which will lead to quicker economic growth, increased inflation, and rising interest rates," explained James Smith, a research director at the Resolution Foundation, a think tank.

The Bank of England is anticipated to keep reducing interest rates from the current 4.75%, but it will likely do so more gradually than analysts had previously forecasted prior to the budget announcement.

The shadow chancellor, Mel Stride, criticized Starmer for refusing to take responsibility for mortgage rates. He stated, "Ultimately, the decisions made by his government will keep interest rates elevated for an extended period, impacting countless hardworking families with mortgages for years. Labour's attempts to deflect from this truth won't alter the situation."

The recent changes in mortgage offers pale in comparison to the significant surge that followed Liz Truss's mini-budget announcement.

After bond yields rose following Reeves's budget, Darren Jones, the chief secretary to the Treasury, remarked that the UK appears to be experiencing lingering effects from Liz Truss's time in office.

Economists emphasize that government policy isn't the sole reason for rising mortgage rates. They also point out that the uncertainty regarding Donald Trump’s policies is affecting how the markets are reacting.

"Interest rates around the world have been rising, including in the US and the UK," stated Smith. "This trend can largely be attributed to the influence of Trump. While the impact of the budget is less significant, it still contributes to this overall shift."

Reflecting on the chancellor's comments regarding last week's GDP data, which indicated that growth had decelerated to only 0.1% in the three months leading up to September, the prime minister expressed that the results were "unacceptable" and "not adequate"—he aims to achieve more than this.

He stated, "This is why we are making a concerted effort to attract the necessary investments to the country. However, the initial priority is to stabilize the economy. Am I hoping for stronger growth? Absolutely. I find the current situation unsatisfactory, and we will ensure that this number increases."

Certain business organizations have indicated that the prolonged uncertainty following the general election in July and the budget increase in October negatively impacted confidence during the summer, which may have played a role in the slowdown of GDP.

On Tuesday, MPs from the cross-party Treasury select committee will interview Andrew Bailey, the governor of the Bank of England. He is likely to face questions regarding how the budget might influence the Bank's policies.

Last week, Bailey made headlines by joining the discussion on how Brexit is affecting the UK economy. He expressed that it is having a negative effect and encouraged the government to form a stronger partnership with the EU.

The global economic forecast has become more uncertain due to Trump's election, as he intends to implement tariffs—taxes on imported goods—from other countries entering the United States.