Views on the News

What you’ll learn:

• US inflation jumps as fuel and housing costs rise
  
• UK economy grows as GDP rises for second month in a row
  
• Squeezed homeowners opt for longer mortgage terms.
  

Headline 1: US inflation jumps as fuel and housing costs rise

Consumer prices in the US rose faster than expected last month, in a sign that the fight to slow inflation has stalled.

Prices rose 3.5% over the 12 months to March, up from 3.2% in February, the US Labor Department said. Higher costs for fuel, housing, dining out, and clothing drove the increase.

Analysts warned that the lack of progress in curbing price rises will force the US central bank to keep interest rates higher for longer.¹

Sean Markowicz, Senior Investment Strategist: The third consecutive upside surprise to US inflation will dent confidence that inflation has stabilised at sufficiently low levels, especially given the marked acceleration in price pressures most linked to domestic demand. This means the prospects for aggressive monetary easing this year are dimming.

Indeed, markets are pricing only two cuts this year starting in September, whereas they had previously expected three starting in June only a few weeks ago. A higher-for-longer rate environment is not necessarily bad for risk assets, however, given how economic growth has been recovering lately.

Headline 2: UK economy grows as GDP rises for second month in a row

The UK economy grew by 0.1% in February, fuelled by improving output in the production and services sectors, indicating that the country continued its recovery from recession albeit at a slower pace.

Gross domestic product (GDP) has now grown for two months in a row after expanding by an upwardly revised 0.3% in January, according to the Office for National Statistics, suggesting that the economy is set to expand in the first quarter of this year.

This would mean that the economy exited the shallow recession it slipped into in the second half of last year. City analysts had expected GDP to rise by 0.1% in February.²

Sean Markowicz, Senior Investment Strategist: The GDP gain suggests a recovery is taking hold across the UK as the worst of the drag of higher interest rates on business activity seems behind us. Questions loom however on the extent to which stronger economic activity will derail progress made on inflation and therefore temper the Bank of England’s willingness to cut interest rates this year.

So far, markets do not appear to be worried by this development as output gains are still running below potential, which means economic slack is likely building-up.

Headline 3: Squeezed homeowners opt for longer mortgage terms

More homeowners are extending their mortgage terms to reduce the pain of higher rates when their cheap deal ends.

Some 24% of remortgages, about 5,400, were taken out with terms of 30 years or more in December, the trade association, UK Finance, said. This is up from 11%, or 2,864 loans, in December 2021.

Millions of homeowners who had been on a mortgage rate of 2.5% or below face paying much more since the Bank of England base rate rose from 0.1% in 2021 to 5.25% today.

The average two-year fixed-rate deal is now 5.81%, and the average five-year fix is 5.39%, according to the financial data firm Moneyfacts.

About half of mortgaged homeowners' deals have ended since the base rate started increasing in December 2021, according to the Bank of England.³

Liam Boardman, Senior Mortgage Specialist: Many borrowers will see a rise in monthly repayments when they come to remortgage or buy a new home compared to previous years of much lower interest and mortgage rates.

It’s important to speak to your lender about what they can offer you so you can start planning for the monthly repayments as soon as possible, and looking at potential ways to restructure your loan if you’re worried about affordability.

One option does not work for all. Extending your mortgage term is one way of combatting higher repayments each month. However, it means that you will repay more over the length of your loan.

By speaking with a mortgage specialist you can talk through your personal circumstances and ensure any changes are appropriate.

We’re on hand to help if any questions arise.