Agents braced for third interest rate rise as economi...

Storm clouds continue to gather over the UK economy with growing inflation, another likely interest rate rise, and a warning from the Chancellor over the weekend.

The Bank of England is expected to raise base rate this week for the third time in three months - with City commentators saying it’s an odds-on certainty.

An increase to 0.75 per cent - following an expected 0.25 per cent rise this week - will take it to the same level as in March 2020 as the pandemic hit.

Only 6.8m homes in England now have mortgages, just 28 per cent of the overall market and about two per cent down from the level five years ago.

Research by mortgage firm Henry Dannell shows that the reduction in total homes owned with the help of a mortgage has been most notable in the East of England, down three per cent since 2017.

However, inflation is expected to surpass 7.0 per cent this year, and the widespread uncertainty as to the effect of the war in Ukraine, add to a pessimistic mood music surrounding the broader economy.

Knight Frank over the weekend suggested that the housing market may, to some extent, be insulated against an economy slowing down.

“The first reason is easily overlooked – the end of the pandemic. The lifting of final restrictions and return to normality is spurring people to take decisions about how and where they live. Crucially, it means demand is more needs-driven and less susceptible to external events” says the agency.

“In higher-value property markets, larger bonuses in sectors including financial services and law have also provided some insulation against the spiralling cost of living” it continues.

Savvas Savouri, chief economist at business consultancy Toscafund - which invests in agencies in the UK - says: “Households are sitting on £250 billion of excess savings compared to the start of the pandemic. House price growth has also created an extra £1 trillion in housing equity over the last two years.”

He expects the Bank of England base rate to end the year at 1.25 or 1.5 per cent as the current uncertainty leads to a slightly shallower upwards trajectory. However, he remains bullish in his outlook for the UK economy this year.

However, Chancellor Rishi Sunak - who next week delivers a financial statement which may include some tax measures - has issued an uncharacteristically downbeat warning about the economy.

He says that while the government’s “unprecedented support” for the economy during the pandemic suggests Britain is well-placed to get through the cost of living crisis, it needs to be recognised that Russia’s invasion of Ukraine “is creating a significant economic uncertainty.