Northern Ireland news

Interest rates hit one per cent as Bank warns cost crisis will send economy into reverse

Around 85,000 homeowners in the north are thought to have some form of variable rate mortgage.

ONE-in-three households with a mortgage in Northern Ireland will see their repayments increase after the Bank of England raised interest rates to one per cent for the first time since 2009.

Members of the Bank's nine-strong Monetary Policy Committee (MPC) voted 6-3 on Thursday to increase rates from 0.75 per cent to one per cent - the fourth time in a row that they have voted for a rise.

It's thought that around 85,000 homeowners in the north have some form of variable rate mortgage.

UK Finance estimated monthly interest payments may rise by between £16 (variable rate) and £26 (tracker).

Ulster University economist Esmond Birnie said the increase for Northern Ireland homeowners will likely be more modest, due to the lower house prices and smaller mortgages.

But the biggest blow to households could come from the rising levels of inflation.

The Bank of England said Consumer Prices Index (CPI) inflation is set to rise from seven per cent currently to more than 10 per cent in October.

Three members of the MPC yesterday said interest rates should increase to 1.25 per cent due to worries over rocketing inflation.

In a grim set of forecasts, the Bank of England predicted that the UK economy will contract in the final three months of 2022, as the cost squeeze sees households rein in their spending.

It expects the UK to narrowly miss a technical recession, as defined by two quarters in a row of falling gross domestic product (GDP).

The Bank has forecast "very weak" quarterly growth in 2023 and a contraction as a whole next year, with UK GDP falling by 0.25 per cent and unemployment picking up sharply as cost pressures hit hard.

Northern Ireland's economy historically performs below the UK average, making it more vulnerable to recession.

Esmond Birnie said he expects the Bank of England will now pause the upward increases in interest rates.

“The Bank of England indicated a very strong reason for such a pause as they've become one of the first commentators in the UK to forecast a recession, even a so-called “mild” recession, in 2023 as they indicate slightly declining GDP for next year.

“As seemed quite likely, the post-Covid recovery is running out of steam and various disruptions, notably relating to the shocks imposed by the war in Ukraine, are proving too much for the world economy,” said the economist.

“In theory, just as a rate rise is bad news for borrowers it should bring some cheer to savers.

“However, expect any further increase in interest rates on deposit accounts to be limited. The increases so far between December 2021 and March 2022 have been marginal.”

Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "Borrowers sitting on a variable rate may want to lock into a competitive fixed-rate mortgage deal to protect themselves from rising interest rates, perhaps sooner rather than later as fixed rates rise, with the average two-year fixed rate surpassing three per cent.

"Fixing for longer may be a logical choice for peace of mind with mortgage payments when other household costs are increasing."

Meanwhile tens of thousands Firmus Gas customers are paying more to heat their homes this week.

Some 47,000 households in the Belfast area saw prices rise 37 per cent, with around 55,000 Firmus customers on the Ten Towns network experiencing a 16.31 per cent hike.

It comes as the price of home heating oil has increased for the third week running in Northern Ireland, with the average price of 900 litres rising by 17 per cent in the past fortnight to £865.

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