Time for a recap.

Chancellor Jeremy Hunt has rebuffed calls to reintroduce tax relief for people’s mortgage payments, as some Conservative MPs push for more help for families.

Speaking in the House of Commons today, Hunt said that such support would undermine efforts to control inflation, ahead of an eagerly awaited update on the cost of living due tomorrow morning.

The chancellor warned against prolonging the “inflation agony” hitting households, saying:

Much as we sympathise with the difficulties and will do everything we can to help people who are seeing their mortgages costs going up, we won’t do anything that would mean we prolong inflation.

Hunt brushed aside suggestions that the government should cap food prices, telling MPs:

I don’t believe capping prices is the right long-term solution.... I will be meeting the regulators next week to talk further about what needs to be done with respect to supermarkets.

Hunt is also planning to meet with mortgage lenders to discuss what forbearance they can provide to borrowers.

Shadow chancellor Rachel Reeves told MPs that households are being hit by the consequence of the Conservative mini-budget last year and “13 years of economic failure”.

The consumer champion Martin Lewis has said the mortgage “ticking timebomb” he warned the government about last year has “exploded”.

Lewis said on Tuesday that if interest rates were going to be high over three or four years, people were going to have to readjust their finances.

Mortgage rates continue to climb, with the average two-year fixed rate rising to 6.07% today, the highest since November.

Analysis by Bloomberg Economics shows that Britain could tip into a shallow recession if the Bank of England pushes its benchmark lending rate to 6% as investors expect.

Tenants are also being squeezed. New figures from Zoopla show that the average UK tenant now spends more than 28% of their pay before tax on rent

Elsewhere in the cost of living crisis, UK grocery price inflation eased for a third consecutive month in June, lifting hopes that food inflation may have peaked.

New figures from market researcher Kantar show that food inflation dipped to 16.5% in the last year.

Fraser McKevitt, the head of retail and consumer insight at Kantar, said:

“This is the lowest rate of grocery price inflation we’ve seen in 2023, which will be a relief to shoppers and retailers.

“But prices rising at 16.5% isn’t something to celebrate and it’s still the sixth highest monthly figure in the past 15 years. Price rises are now being compared to the increasing rate of grocery inflation seen last summer, which means that it should continue to fall in the coming months, a welcome result for everyone.”

Tomorrow we discover if the official inflation measure dropped in May, with economists predicting a small decline from 8.7% to 8.4%.

In other news….

The big increases in monthly mortgage costs Britons are facing “just don’t happen here”, says Roger Bartlett, who bought a home in Belgium when working in the country as an air traffic controller.

He says his experience was the same in the Netherlands, where mortgages with 30-year repayment terms are the most common loans used by homebuyers, my colleague Phillip Inman writes.

The rapid increase in UK mortgage rates – the average two-year fixed deal has hit 6% for the first time this year – has raised questions over how the British home lending market compares with overseas nations as interest rates rise across the globe. A picture of a comparatively short-term, highly competitive UK industry quickly emerges.

Bartlett’s first mortgage carried a 9% interest rate, but when new mortgages were beginning to be offered at nearer 4% a few years later, he paid a charge – equivalent to three months of payments – to transfer to the lower rate.

“The benefit to the customer is that you can plan your outgoings for the total period. And for society it brings stability into the market, with most lenders not being affected by the rate changes,” he adds….

More here:

Chancellor Jeremy Hunt has said he will meet lenders later this week to ask what help they can give to borrowers struggling with their mortgage, PA Media reports.

Mr Hunt told the House of Commons he would be asking what flexibilities might be possible for borrowers in arrears.

He said:

“We won’t hesitate in our resolve to support the Bank of England as it seeks to strangle inflation in the economy. The best policy is to stick to our plan to halve it.

“But I also want to make sure we do everything possible to help families paying higher mortgage rates in ways that do not themselves feed inflation.

“So later this week I’ll be meeting the principal mortgage lenders to ask what help they can give to people struggling to pay the more expensive mortgages and what flexibilities might be possible for families in arrears.”

It is understood that the meeting will take place on Friday.

Shadow chancellor Rachel Reeves tells MPs that mortgage rates are rising due to 13 years of economic mismanagement and the mini-budget last year, leaving to higher inflation in the UK.

Q: Average mortgage payments are going up by a crippling £2,900 this year – where does the chancellor think families are going to get the money to pay the Tory mortgage penalty?

Jeremy Hunt says the government announced £94bn support in the autumn budget.

He says Labour’s plans mean an extra £28bn of borrowing per year, at a time when experts say higher borrowing mean higher inflation, higher interest rates and higher mortgage rates.

Reeves tells the chancellor to stop passing the buck, and focus on the mortgage crisis.

She say 10,000 households in Uxbridge and South Ruislip will be paying £5,200 more on average this year (which may concentrate minds at the upcoming by-election).

Q: Will the chancellor apologise for the harm that his government have caused?

He will not. Hunt declares, to some chortles from opposition MPs, that:

I am proud of our economic record, which has seen our economy grow faster than France or Japan since 2010, and the same rate as Germany.

Mortgage holders will pay even more if a Labour government borrowed an extra £100bn in the next parliament, Hunt adds.

Chancellor Jeremy Hunt has told MPs he will meet major lenders later this week to ask them to show forbearance towards households who struggle to pay rising mortgage bills.

During Treasury questions, Hunt says the government “won’t hesitate in our resolve” to support the Bank of England in its fight against inflation.

The best policy is to stick to our plan to halve it.

Hunt adds:

“Later this week, I’ll be meeting the principal mortgage lenders to ask what help they can give to people struggling to pay more expensive mortgages, and what flexibilities might be possible for families in arrears.”

Stewart Hosie, Scottish National Party MP for Dundee East, reminds MPs that the cost of a two-year fixed mortgage has risen from 2.57% in March 2021 to over 6% today.

Q: As the government have no plans to change the Bank of England’s inflation target, which means interest rates will keep rising, what will you do to actually tackle the mortgage pain people are suffering from?

Hunt says interest rates have risen in other countries, and at a faster rate in the US and Canada than in the UK.

The chancellor says:

We will look at doing everything we can to help people under pressure, but we won’t do things that will prolong the inflationary agony that people are going through.

We have to be very careful, because a lot of the schemes that are being proposed would actually make inflation worse and not better.

Hunt makes clear - again - that his only policy to bring down interest rates is to stay the course on crunching inflation. He tells the Commons: "A lot of the things that are being proposed would actually make things worse not better."

— Hugo Gye (@HugoGye) June 20, 2023

Hosie points out that in March, the Office for Budget Responsibility thought inflation would peak at 2.9%. By May, the Bank of England was predicting 5% – nearly double.

Q: Will the chancellor guarantee today that inflation will be halved to 5%, as promised by the prime minister?

Hunt says the IMF, the OBR and the Bank of England all predict the UK government will hit its target of halving inflation.

I give him this guarantee – we will stick to the plan to do so.

Chancellor Jeremy Hunt has ruled out providing large-scale assistance to mortgage payers, through tax relief on their mortgage payments.

Sir Jake Berry, Conservative MP for Rossendale and Darwen, tells MPs at Treasury Questions that people are very concerned about what is being called a “mortgage bomb that is about to go off”.

Q: Is it time to consider reintroducing a bold Conservative idea of mortgage interest relief at source. If we don’t help families now, all the other money we have spent to help them will be wasted if they lose their home.

Hunt replies that such schemes, involving injecting large amount of cash into the economy, would be inflationary.

He adds:

Much as we sympathise with the difficulties and will do everything we can to help people who are seeing their mortgages costs going up, we won’t do anything that would mean we prolong inflation.

Tory MP Jake Berry asks Jeremy Hunt to consider reintroducing tax breaks for mortgage interest. Chancellor rejects idea because it would "involve injecting large amounts of cash into the economy" and therefore stoke inflation.

— Hugo Gye (@HugoGye) June 20, 2023

Mortgage interest tax relief – effectively a tax break for home buyers – was introduced in 1983 to boost homeownership but scrapped in 2000.

Patricia Gibson, SNP MP for North Ayrshire and Arran, turns Treasury questions to the cost of living squeeze.

She reminds MPs that former Bank of England Mark Carney had spoken about how before the Brexit referendum, the BoE had warned that Brexit would probably mean a weaker pound, higher inflation and weaker growth:

Q: Is it fair that the UK government’s decision to ignore those stark warnings are being paid for by households who can least afford it?

Chancellor Jeremy Hunt says he doesn’t “buy this Brexit narrative”.

Food price inflation has been around 20% in Germany, Sweden, Portugal and Poland in recent times, Hunt says [in the UK it’s running at around 19%].

He insists:

This is not a UK-specific issue.

We are all dealing with the consequences of Putin’s invasion of Ukrraine and the aftermath of the pandemic, and we are all tackling it with one central focus, to bring down inflation as our overriding priority.

Over in parliament, Treasury ministers are taking questions from MPs – at a time when the cost of living crisis has soared up the political agenda.

Ian Byrne, Labour MP for Liverpool, West Derby, asks what fiscal steps the chancellor plans to take to help reduce the impact of recent increases in the cost of living on households.

Chancellor Jeremy Hunt says the government knows the pain that households up and down the country are going through.

It has introduced “one of the largest support packages in Europe”, Hunt adds, worth £3,300 per household this year and last year.

Byrne points out that Which? has shown that own-brand supermarket food brand prices have risen by 26.6%. We now have security locks on baby formula milk, at a time when corporations are making vast profits, he says.

Byrne reminds the Commons that the government have signed up to UN goals of eradicating poverty. So..

Q: Will he cap essential food prices and tackle the grotescue profiteering in the food industry that is driving many of my constituents in Liverpool, West Derby into poverty?

Hunt says he totally respects Byrne for raising these concerns, but doesn’t support such price caps.

The chancellor says:

I don’t believe capping prices is the right long-term solution.

Hunt insists that “we are doing a lot”, citing payments of £900 per household for people on means-tested benefits, £150 for households with a disabled member, and £300 for thosewith pensioners.

This, Hunt adds, is:

Precisely because we want to help the people he is talking about.

Hunt adds that he will meet with regulators next week to discuss what else can be done with respect to supermarkets…

Rising interest rates can be profitable for savers, with NS&I raising the rates on its Premium Bonds today, and its savings package for young people.

ThePremium Bonds prize fund rate has been increased to 3.70%, its highest rate in 15 years, and the Junior ISA interest rate increased to 3.65%.

Myron Jobson, senior personal finance analyst at interactive investor, says other savings rates have also been rising, creating more competition….

“NS&I has once again sweetened its popular flagship product in a bid to meet a lofty target set by the government to attract £7.5bn from savers in the current tax year, which is 25% more than the £6bn target for the previous year.

It is a tall order for the government-sponsored bank facing stiff competition from other savings providers.

Easy access savings rates have hit 4% for the first time since 2009, and market-leading one, two, three and five-year fixed bonds all offer 5.30% or more according to Moneyfacts.

Consumer champion Martin Lewis has said that a mortgage ticking time bomb that he previously warned about is now exploding.

The MoneySavingExpert.com founder told ITV’s Good Morning Britain that he had previously highlighted a “mortgage ticking time bomb”.

He continued:

“And I’m afraid that time bomb is now exploding.”

Lewis was speaking around the time that Moneyfacts reported that the average two-year fixed-rate mortgage now cost 6.07%, the highest since November, and as Bloomberg warned that high interest rates could cause a recession.

Mr Lewis said that if interest rates are going to be high over three or four years, people are going to have to readjust their finances.

He said he could not see a mortgage rescue package being brought in, as the whole point of higher interest rates is to leave people with less disposable income.

Many asking "how do to prevent my mortgage rate jumping unaffordably when my fix ends?"

The problem is @bankofengland interest rates rises are a deliberate disposable income squeeze. Its designed for you to pay massively more, so there's less money in economy, to help inflation.…

— Martin Lewis (@MartinSLewis) June 20, 2023

As I've said before, it looks like we're saying BofE must control inflation with its one tool; interest rates. Even tho that controls demand and our issue is supply. We need joined up action cross govt & finance. Yet I must caveat, I'm not an economist, this isn't my expertise.

— Martin Lewis (@MartinSLewis) June 20, 2023

Lewis also criticised the UK banks for not making it easier for struggling borrowers to take payment holidays, temporarily reduce the amount they pay in, or to switch to interest-only loans.

Lewis said he gave his views during a mortgage summit held by Chancellor Jeremy Hunt last year, explaining today:

“And what I was suggesting in that meeting is, first of all those things need to be made reversible, so you know that if you can do it temporarily you can go back without a problem. That isn’t the situation.

“And second, they need to look at minimising the impact on people’s credit scores, because that puts people off taking a form of action, it scares them that they’re going to be disenfranchising themselves from other forms of borrowing for six years, but again, that hasn’t happened.

“So the ultimate result of that mortgage summit was a tiny bit more communication to borrowers.”

The cost of fixed-rate mortgages may continue to rise, unti the markets see signs that UK inflation is falling steadily.

Nicholas Mendes, mortgage technical manager at broker John Charcol, explains:

My worry is that things may well get worse before they get better, while we expect inflation figures [on Wednesday] to come down the anticipation will be they in line with market forecasts. If not, markets will be pricing in higher base rates over a longer period of time.

We also have the MPC meeting on Thursday which will also play a part in market reaction following the governors’ comments.

Markets need stability and a positive outlook for the future, once we have this in our sights this is when we will see swaps reduce and start to see fixed rate pricing come down.

Homeowners need to understand that sub 2% rates aren’t the norm and should not be used as a benchmark of where rates will return to in the future. A mortgage is a long-term commitment which ultimately means you must take the rough with the smooth.

Average two-year fixed mortgage rates in Britain have jumped to their highest since late November, as the turmoil in the mortgage market continues.

Data provider Moneyfacts report that the average two-year fixed mortgage rate has risen to 6.07% this morning, up from 6.01% yesterday.

At the start of May the average was 5.26%, but it has been rising steadily higher as financial markets have anticipated further rises in UK interest rates – possibly to 6%.

The average cost of five-year fixed-rate mortgages increased to 5.72% from 5.67%, which is the highest since early December.

Interactive

There are also fewer mortgages on the market, too. Moneyfacts reports there are 4,641 residential mortgage products available today, down from 4,683 on Monday.

Interactive

The UK economy could fall into recession if the Bank of England lifts interest rates as high as some investors expect.

New analysis from Bloomberg Economics show that Britain could tip into a shallow recession if the Bank of England pushes its benchmark lending rate to 6%

Currently, the money markets indicates there’s a slightly greater than evens chance that BoE base rate hits 6% by February 2024, up from 4.5% at present (with a rise to 4.665% expected on Thursday).

🇬🇧Bank of England's terminal rate expectations surge to 5.75-6.0% (currently 4.5%) due to higher-than-expected wage and core inflation data. Will the UK have the highest interest rates among G7 countries? Watching Thursday's #BOE meeting for answers. pic.twitter.com/oUKOR5xsue

— MacroMicro (@MacroMicroMe) June 19, 2023

Bloomberg has calculated that, if rates hit 6%, GDP would shrink by 1.4% in 2024.

“Our own view is that the pricing is probably overdone,” Dan Hanson, an economist at BE, wrote in a note published Tuesday.

Hanson adds:

“But if this tightening cycle has taught us anything, it’s not to underestimate the persistence of inflation.

The BOE may judge a significant slump is what’s needed to prevent the inflation psychology in the UK from becoming embedded.”

UK Headed For Recession If Rates Reach 6%, Economist Says - BBG https://t.co/0QVYgZvmns

— LiveSquawk (@LiveSquawk) June 20, 2023

Because more people are on fixed-rate mortgages than a few decades ago, it will take longer for previous increases in interest rates to impact households

Hanson writes:

“With that in mind, we think there’s a significant risk of a downturn later this year — even on our relatively dovish policy view. If rates were to climb to 6% the slump would be even deeper.

The proportion of products sold for £1 in UK supermarkets, has almost halved in a year from 9% to 5%.

That’s a big shift, reports Kantar, who argue that the cost of living crisis is discouraging retailers from riced products at ‘round-pound’ points.

They explain:

Traditionally, ‘round-pound’ prices have been attractive to shoppers, who find them easier to relate to and practical as well with no leftover change.

But, with retailers eager to offer value and cash buying less popular, £1.25 has emerged as an increasingly important price point. It now vies with £2 as the second most popular price for a grocery item.

📈🛒 Interesting detail from monthly @Kantar supermarket inflation figures:
“The proportion of products sold for £1, the single most popular price for a grocery item, has almost halved in a year from 9% to 5%.  That’s a big shift.”

— Harry Wallop (@hwallop) June 20, 2023

Aldi was the fastest growing UK retailer in the 12 weeks to 11 June, as cash-squeezed households flocked to discount suprermarkets.

Aldi’s sales rose by 24.6%, giving it a new record market share of 10.2% – up from 9% a year ago

Lidl grew its sales by 23.2%, and now has 7.7% of the market.

UK supermarkets hiked prices of some summer favourites last month, such as icecreams and BBQ food.

Fraser McKevitt, Kantar’s head of retail and consumer insight, says:

The increased cost of staying cool will have come as a shock for many, with like for like prices on ice cream up 20% and mineral water up 17%.

The barbecue spread has equally been hit. Fresh sausage prices have risen by 16% while fresh burgers increased by 13%, showing how grocery price inflation is continuing to hurt consumers at the till.

Newsflash: Food price inflation across Great Britain has eased, but prices are stil rising at a painfully high pace.

Annual grocery inflation dropped to 16.5% for the four weeks to June 11, analysts at Kantar have reported, the lowest level recorded in 2023.

That’s a fall from the 17.2% recorded a month ago, and below the record 17.5% recorded in March.

But this still means supermarket prices are rising much faster than wages, or the wider measure of consumer price inflation (which was 8.7% in April – we get May’s figure tomorrow).

Fraser McKevitt, head of retail and consumer insight at Kantar, said:

“This is the lowest rate of grocery price inflation we’ve seen in 2023, which will be a relief to shoppers and retailers.

“But prices rising at 16.5% isn’t something to celebrate and it’s still the sixth highest monthly figure in the past 15 years.

“Price rises are now being compared to the increasing rate of grocery inflation seen last summer, which means that it should continue to fall in the coming months, a welcome result for everyone.”

First-time buyers are being hit by a drought in mortgages, as lenders pull back from offering home loans for those with small deposits.

The number of products for borrowers who need to borrow 95% of the value of their home has dropped by over 40% over the past year, the Financial Times reports.

They explain:

According to data provider Moneyfacts, there were 199 products on offer over the weekend for would-be buyers looking to borrow up to 95 per cent of the value of the property, down from 347 at the start of June 2022.

The average interest rate on a two-year fixed 95 per cent loan-to-value mortgage jumped by more than 3 percentage points to 6.49 per cent over the same period, while for five-year products it rose more than 2 percentage points to 5.8 per cent.

“The constant rate changes and ongoing market uncertainty is causing havoc,” said Aaron Strutt, director at Trinity Financial. “First-time buyers are struggling to access mortgages, especially if they have smaller deposits.”

A 5% stake in the housing game is a risky bet for both the house & the player in a mkt downturn - According to @Moneyfacts_couk mortgage products for buyers looking to borrow up to 95% of the value of a property saw their options reduce from 347 at the start of June to 199 @FT pic.twitter.com/I1b7N96GFW

— Emma Fildes (@emmafildes) June 20, 2023

A glimmer of good news – the input production costs of UK food and drink manufacturers have fallen for the first time since April 2016.

This provides optimism that future food price inflation will ease, reports Lloyds Bank, athough they fear it will be “some time” before this feeds through “if at all” to on-the-shelf food prices.

Food and drink producers benefited from a drop in commodity prices last month, with the prices of vegetable oils, cereals and dairy products falling on the global markets.

The cost of shipping, and energy, both eased in May too, helping to reduce cost pressures.

But, Lloyds Bank’s UK Sector Tracker found that salary inflation is the ‘stickiest’ element pushing up prices.

Annabel Finlay, managing director for Food, Drink and Leisure at Lloyds Bank Commercial Banking, explains:

“This drop breaks sustained rises in production costs for food and drink manufacturers, which have been among the sharpest of any sector monitored by the Tracker.

“If production costs continue to fall, whilst welcome, it will still take some time before we see the benefit in terms of shelf prices. This is, in part, due to the long-term nature of contracts between the manufacturers and retailers, as well as the broader segments of the production chain.

“With the continued risk of future disruption to supply chains that could mean input costs rising again, food and drink manufacturing companies should continue to review their supply relationships and optimise their working capital to help shield against any market shocks and build ongoing resilience.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s cost of living squeeze is rocking the property sector, driving up cost for tenants and mortgage-owners alike.

With rents rising faster than wages, the average UK tenant is now spending more than 28% of their pay before tax on rent, figures compiled by property portal Zoopla shows.

That means people are spending more of their wages on rent than at any other time in the last 10 years.

Average rents for new lets have also risen, Zoopla reports – jumping 10.4% in a year. With wages only growing by 5.7% during 2022, it has become harder for people to afford places.

In April, rent in London was 13.5% higher than a year ago, in Scotland it was 13.1% higher, and the North West of England saw a 10.5% increase.

Richard Donnell, executive director at Zoopla, said there was signs of financial “stress” for tenants, particularly those on low incomes.

Donnell adds:

“The impact of higher rents is not uniform with those on low incomes bearing the brunt, with increasing signs of stress.”

NEW @Zoopla rental report finds 1) rents for new lets have outpaced earnings for 21 months, 2) Rental affordability worst for a decade but 3) talk of landlord exodus overdone - higher mortgage rates hit 20-30% of landlords with >50% LTV loans pic.twitter.com/wiW6pKWb8q

— richard donnell (@richard_donnell) June 20, 2023

Those looking to remortgage also face more stress, given the recent increases in borrowing costs.

Yesterday, the cost of the average two-year fixed rate mortgage hit 6% for the first time since December, but the government is resisting calls to help struggling mortgage-payers.

TSB has became the latest lender to pause sales of some of its mortgages, by removing some products at 4pm yesterday.

Also coming up

At 8am we discover if food price inflation eased in the last month, when market research group Kantar releases its latest assessment of the grocery market.

Investors are digesting an overnight rate cut in China overnight. The People’s Bank of China has cut its one-year and five-year loan prime rates 10 basis points each (0.1 percentage point), as Beijing tries to stimulate its economy.

The agenda

• 8am BST: Kantar monthly report on UK grocery industry

• 10am BST: Eurozone construction output in April

• 1.30pm BST: US housing starts and building permits data for May