Families won’t be able to afford to pay mortgages, warns M&S chief

Rate rises are the biggest threat to the economy, Marks & Spencer chairman Archie Norman warns
(Peter Byrne/PA)
PA Wire
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The boss of Marks & Spencer has warned that some families would not be able to pay their mortgages next year if interest rates continue to rise as sharply as forecast.

The warning from M&S chairman Archie Norman came a day after new Chancellor Jeremy Hunt dramatically ripped up Liz Truss’s economic plan and cut short the Government’s support on soaring energy bills in a bid to plug a gaping black hole in the public finances and calm jittery financial markets.

But households could now face a painful double whammy with the Bank of England predicted to raise interest rates to just over 5 per cent next year and experts estimating typical energy bills could jump to £4,300 a year once the Energy Price Guarantee, which caps typical bills at £2,500, is reviewed in April.

Inflation figures for September, due to be published on Wednesday, are expected to show another increase in prices from 9.9 per cent to more than 10 per cent, adding to the painful squeeze on household budgets and setting the scene for a sharp rise in interest rates by the Bank next month, Mr Norman said that while inflation may start to fall by next summer, the biggest problem facing households and businesses was now rising interest rates.

“Interest rates do have to rise, but if they rise as fast has been forecast, that’s really pretty bad for the consumer economy,” Mr Norman told LBC. “It means that there’ll be households next year who can’t afford to pay their mortgage and some will be Marks & Spencer customers so I really do mind about that.

“By June next year we could be looking at inflation coming down to quite low single digits. And our problem then is actually probably going to be interest rates. So the biggest threat to the economy… [is] rising interest rates and the impact on financing business.”

Mortgage rates continued their remorseless rise today despite the calmer conditions in the gilts market, with the average two-year fix above 6.5 per cent for the first time since August 2008. It stood at 6.53 per cent, up from 6.47 per cent yesterday. The average five-year fixed rate rose from 6.29 per cent to 6.36 per cent, the highest since November 2008.

Gilt yields were slightly up after the Bank of England denied reports it is further delaying its programme of selling government bonds — so called quantitative tightening — to help tackle inflation. The yield on the 10-year gilt was up 6 basis points at just over 4 per cent while the 30-year gilt yielded 4.41 per cent, up 3 basis points.

Even after reversing £32 billion of tax cuts in yesterday’s emergency statement, economists say Mr Hunt still has to find £40bn in spending cuts or tax rises to put the public finances back on an even keel.

As part of the tightening, Mr Hunt announced a review of the Government’s £60bn energy bill support which was supposed to last for two years but now looks set to be cut for all but the most needy.

With Russia’s invasion of Ukraine likely to make energy prices volatile for months to come, the Chancellor feared the Treasury could be forced to spend tens of billions of pounds propping up all households as energy bills continue to rise.

But with the scheme now set to become more targeted, energy market experts Cornwall Insight predict the typical energy bill could now hit £4,347 next April before falling back to £3,697 next July.

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