Unlucky thirteen and uncomfortable truths
Interest rates, mortgages, politicians, central bankers and public opinion
On Thursday 22nd June, the Bank of England announced a 0.5% increase in the base rate. It was the thirteenth successive monthly increase and the Bank’s rate is at its highest level for about 15 years. The Prime Minister was asked about his confidence in the Bank’s Governor while the Chancellor “summoned” banks and building societies to Downing Street.
48 hours earlier on June 20th, Ipsos conducted a poll which found 74% of Britons and 83% of mortgage holders reporting that they were following stories about interest rates very or fairly closely (by comparison, 61% and 63% were following Parliament’s investigation into the conduct of Boris Johnson). The same survey found 44% of those with a mortgage reporting an increase in their payments in the previous three months, up from 36% in January.
Over a longer period — between June 14th and 20th — Ipsos’ monthly Political Monitor interviewed over 1,000 people. It found 80% of Britons dissatisfied with the way the Government was running the country. Dissatisfaction was an incredible 87% among mortgage holders.
Tellingly, it was a Conservative backbencher who warned Britain was heading for ‘mortgage catastrophe’ because of interest rate rises. What Lucy Allan didn’t know at the time was that the Political Monitor had a Labour lead of 34 percentage points among this tenure in voting intention. While Labour has had a lead among mortgage holders for a while now — it was 9 points in June 2022 even before the mini-budget spooked the markets and the country — the Conservatives were ahead among this ‘bellweather’ tenure in June 2021, comfortably and crucially so at the 2019 general election.
While thirteen is synonymous with bad luck, the British public are less minded to write-off mortgage rises as the product of misfortune. A large proportion attribute rising mortgage rates to Russia’s invasion of Ukraine and to Brexit but three-quarters of those with a mortgage are of the view that the economic policies of the Conservatives in government have contributed a great deal or a fair amount.
Other polling has shown that despite Sir Keir Starmer and Rachel Reeves echoing Rishi Sunak and Jeremy Hunt by ruling out intervention in the mortgage market or using subsidy for repayments, Labour was more trusted than the Conservatives to tackle the issue of mortgage rate rises.
The Bank of England has come under fire too. The Ipsos poll found eight in ten people attributing rises in mortgage rates to decisions made by the Bank. While this may be a literal take, something else is at play. In May, a fifth of the public expressed satisfaction with the way the Bank of England was doing its job at setting interest rates to control inflation, the lowest level in its time series dating back to the turn of the century. That was May; what will it be in August?
The Bank does have an unenviable job — to adapt Ted Heath’s criticism of Nigel Lawson, it is a one club golfer playing a difficult course. Gita Gopinath, Deputy head of the IMF, recently described an “uncomfortable truth” for central bankers, advising that “When governments lack fiscal space or political support to respond to the problem, central banks may need to adjust their monetary policy reaction function to account for financial stress”.
There is plenty of stress and little room for manoeuvre for those in charge. In last weekend’s interview with Laura Kuenssberg, Sunak urged homeowners and borrowers to “hold their nerve” over interest rates rises. Those nerves are fraying.
