Brace yourselves homeowners, there's no chance of another rate cut this year

Telegraph

6 hours ago

Markets – from stocks to bonds, and even oil – are exhausted. Seemingly inured to chaos, these bellwethers of global sentiment are consistently pricing in the idea that everything will work out in the end.
Covid, inflation, Ukraine, mounting and unsustainable government debt, things keep going wrong and nobody is willing to accept it until they have no other choice. The patently obvious inflation spike of 2022 was declared 'transitory' until it simply couldn't be any more, central banks seemingly fearful to acknowledge it lest they accidentally manifest it.
Donald Trump is currently learning that wishing something to be the case does not make it so.
On Monday night he declared a ceasefire had been agreed between Israel and Iran, and celebrated the end of 'The 12 Day War'. By the time he woke up on Tuesday the two nations had already violated it.
At 12:38, on our live coverage of the situation, we posted: Trump says Israel won't attack Iran.
At 12:44, the blog read: Reports of explosions in Tehran.
So frustrated by his inability to mend relations between Israel and Iran over just a few days, Trump complained to reporters on the White House lawn that the pair 'don't know what the f--- they're doing', showing a level of frustration I certainly can't remember from a serving president at least publicly.
Not that he's offering much clarity himself – he has now reneged on his threat of regime change two days after suggesting it was almost inevitable.
Around a fifth of the world's oil and gas moves through the Strait of Hormuz, which Iran's parliament has voted to block, but prices have fallen dramatically as investors bet it won't happen.
At home, a raft of increased costs have just hit employers from National Insurance to minimum wage rises, while we all feel the costs in our pockets as inflation jumped above 3pc and shows no sign of returning to target.
Yet markets continue to price in two rate cuts from the Bank of England this year, seemingly because they would really like that to happen. No amount of optimism will change the realities of the situation.
Andrew Wishart, an economist at investment bank Berenberg, is one of the few willing to put his head above the parapet and predict the end of rate cuts in 2025.
Last week – before the US bombed Iran – Mr Wishart was already certain that inflation would stay around the 3.5pc mark, forcing the Bank of England's hand and ruling out any cuts before Christmas. Alongside increased business costs, he was concerned about government spending and stubborn services and food price inflation.
He also raised the spectre of oil price volatility, suggesting that a spike to $85 a barrel would keep inflation at 4pc. Were Iran to follow through on its threat to block the Strait of Hormuz, other analyst estimates have put the oil price at $130-$150.
Of course, Britain's bigger problem in the wake of Russia's invasion of Ukraine was about the supply of gas rather than oil, but, as Chris Wheaton, an oil and gas analyst at broker Stifel, explained, that risk is present here, too.
Were liquefied natural gas (LNG) production from Qatar and the UAE to be disrupted, he predicts the energy price cap in the UK could more than double to £3,000-£4,500 per year, which would be 'economically and political disastrous'.
With its recent embarrassing experience of underestimating an energy price crisis, it stands to reason the Bank of England will err aggressively on the side of caution.
Even if inflation hovers around 4pc rather rising back to the highs of 2022, consumers will be hurt.
Those long-trailed 'time lags' are finally set to hit the last of the mortgage market, as those remaining homeowners are pulled off their cheap five-year rates secured at record-low rates in the pandemic.
For example, a homeowner with a £500,000 mortgage forced to remortgage at 4.5pc today would see their repayments rise by nearly £800 a month, assuming they were previously paying 1.5pc. Over a year, that's nearly £10,000 – a devastating hit to the nation's personal finances.
Of course, everything I've said could age like milk. Everything may just work out; tensions ease, inflation lowers, rate cuts continue. I certainly hope so.
But just in case, I would start tightening your purse strings.