Double whammy as average council tax bill to pass £2,000 for the first time
Millions of homeowners and thousands of businesses face more pain after the Bank of England raised interest rates to a 14-year high on Thursday.
The eleventh consecutive increase comes as the bank struggles to bring stubbornly-high inflation under control. The consumer prices index jumped last month to 10.4 per cent from 10.1 per cent in January.
And in more bad news for households, official figures also show average council tax bills in England will this year top £2,000 for the first time.
But there were signs of hope on the economy, with the Bank’s governor Andrew Bailey saying he was “a bit more optimistic” the UK could avoid recession. It came as:
- Rates hit 4.25 per cent for the first time since the 2008 global financial crisis
- There were calls for banks to help savers by passing on rate rises
- Labour says households are paying a “Tory mortgage penalty”
- Councils warned ”unprecedented” financial pressures could mean cuts to key services
“Back at the beginning of February, we were really a bit on a knife-edge as to whether there would be a recession,” Mr Bailey said. “Certainly we thought the economy would be quite stagnant. I’m not saying it’s off to the races, let’s be clear, but I am a bit more optimistic.”
Interest rates were raised from 4 to 4.25 per cent, their highest level since October 2008. But economists suggested the raise could be the last, with prices expected to fall over the course of this year.
Jeremy Hunt, the chancellor, backed the rate hike, saying: “The sooner we grip inflation the better for everyone.”
Shadow chancellor Rachel Reeves told The Independent: “The Tories are not in control of our economy. The interest rates rise and soaring food inflation will be a source of huge concern for families across the country who will be thinking about the impact this will have on their finances.
“The government thinks the cost of living crisis is over but the reality is that too many families are dealing with a Tory mortgage penalty and battling with soaring food prices.”
Despite its concerns over inflation, the bank’s decision was complicated by the recent crisis in the banking sector, sparked by the demise of Silicon Valley Bank in California.
The choice to raise rates suggests it is prioritising the fight against inflation over any concerns about problems in the financial markets.
Meanwhile, annual council tax bills in England will rise by an average of 5.1 per cent in April, government figures show.
Councils warned of a risk of cuts to crucial services due to the “unprecedented” financial pressures they face.
Official figures show the average bill will be £2,065 in 2023-24, £99 more than the year before. Almost all councils will also apply some or all of the maximum 2 per cent levy they can use to help pay for social care.
The Conservative-led County Councils Network (CCN), which represents local authorities which provide services to almost half of Engalnd’s population, said the combination of a 4.8 per cent increase in direct local government funding and council tax flexibilities in 2023-24 is not enough to cover rising costs and growing demand.
Carl Les, CCN spokesperson and the Conservative leader of North Yorkshire County Council, which covers Rishi Sunak’s constituency of Richmond, said extra money from the chancellor last autumn “made a big dent in the unprecedented new costs councils face … but unfortunately it was not enough”.
“We understand that residents are in the midst of a cost of living crisis, and many of us have reluctantly proposed maximum council tax rises,” he said.
“While councils will do all they can next year to deliver these savings whilst protecting vital services, particularly care services, there is already little fat to cut.”
On the rates rise, Frances Haque from Santander said the Bank’s decision was “always likely to be finely balanced”. While the outlook for the rest of this year remains challenging, she said, “the mood music and confidence indicators are improving and with that the prospect of narrowly escaping a technical recession”.
Kevin Pratt from Forbes Advisor called for savers to see the benefits of the rates rise, saying banks “are depressingly sluggish when it comes to passing on increases to their saver customers”.
He said: “In the midst of a full-blown cost of living crisis that shows no signs of abating, those who rely on their savings for some or all or their income deserve to be treated better.
“As for mortgage customers and other borrowers, fixed-rate borrowers will be sheltered until their term ends, so let’s hope rates switch into reverse soon. But for those with trackers and variable rates, the effects will be pretty much immediate. Households across the land will receive this news with weariness and despair.”
Source: Independent
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