Average five-year mortgage rate hits 6%; food inflation ‘starting to fall’ – business live

UK bank bosses will be grilled by the financial watchdog this week amid mounting concerns that they are profiting from rising interest rates by offering paltry savings rates to customers.

Executives from the big high street names Lloyds Banking Group, NatWest, HSBC and Barclays, as well as from smaller lenders, are due to attend a meeting at the Financial Conduct Authority (FCA) on Thursday to discuss concerns that savings rates are lagging far behind the soaring costs of mortgages and loans.

The Bank of England has raised its base rate to 5% and further increases are expected.

Today’s figures from Moneyfacts throw a new spotlight on the situation, with a two-year fixed mortgage now costing 6.47% while easy access savings accounts pay just 2.45% on average.

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UK borrowers continue to be hit by higher mortgage rates as the cost of living squeeze continues.

The average five-year fixed residential mortgage rate has hit 6.01% today, up from 5.97% on Monday, data from the financial data provider Moneyfacts shows.

That’s the highest level since last November, when mortgage rates had been driven up by the mini-budget chaos last autumn.

Shorter-term mortgage rates also continue to climb. The average two-year fixed residential mortgage rate has jumped to 6.47, up from 6.42% on Monday.

The average two-year fixed was last higher on 31 October 2022 (when it was 6.48%).

These fixed-term rates have climbed in recent weeks as the UK’s persistently high inflation rate has pushed up interest rate expectations.

Two-year government bond yields, which are used to price fixed-rate mortgages, yesterday hit a 15-year high of 5.3%.

Analysts have warned that more than a quarter of UK homeowners on a fixed-rate mortgage face sharp increase in monthly payments before the next election.

Economists at the Resolution Foundation thinktank predicted last month that total annual home loan payments were on course to rise by £15.8bn by 2026 – delivering a £2,900 blow for the average household remortgaging next year.

Food price inflation may finally be falling, but two-thirds of the public think food prices should be capped.

A survey of 1,500 adults by BMG for the i newspaper found that 67% of those questioned backed the idea of the government introducing price caps on essential goods to help households manage the effects of rampant inflation.

Just 13% of respondents opposed the idea, which would see ministers set prices for certain everyday products such as milk, eggs and bread in supermarkets.

The idea was raised at the end of May, when the government met food retailers, but the chancellor, Jeremy Hunt, has ruled out compulsory price caps.

The Labour MP Richard Burgon called for ministers to cap prices in the wake of the poll result, saying:

Not only would price caps be popular but they are the right thing to do. There is growing evidence that inflation is now being driven by companies hiking their prices to boost profits.

Labour, though, questions whether price controls would be effective.

Critics have claimed price caps would lead to shortages, as food producers would favour selling their products at full price in other countries.

But price controls would tackle greedflation, and cause less economic damage than raising interest rates to cool the economy and subdue growth.

For Britain’s second largest supermarket, Sainsbury’s, to state that food inflation is starting to fall is a big deal for shoppers.

So says Emma-Lou Montgomery, associate director from Fidelity International’s Personal Investing share dealing service.

Montgomery explains:

While every one of the ‘big four’ has chased price-sensitive consumers during the cost of living crisis, the real difference that we will all taste is when prices do come down and aren’t just being tinkered with at the edges by the grocery giants who put 99% of food on the nation’s tables.

The launch of Nectar Prices in April, Sainsbury’s Stamford Street – its ‘entry-price’ range, and its ongoing Aldi Price Match campaign are all designed to show customers that this supermarket cares about the cost to their pockets. It will be more telling to see if there is any shift in the ranking of the big four once food inflation does subside.

And we get a sense of whether customers really felt cost savings were for their benefit, or just part of the battle for profits and market share that has been playing out between these big supermarket chains for years now.

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

After months of soaring prices, food inflation is starting to fall.

That’s the word from supermarket chain J Sainsbury this morning, which will bring some relief to households, the Bank of England and Rishi Sunak alike.

In its latest financial results, just released, Sainsbury’s reports that its like-for-like sales (excluding fuel) jumped by 9.8% in the 16 weeks to 24 June.

Sales at its grocery arm were “strong”, up 11%, Sainsbury’s reports.

Price rises by supermarket chains have driven UK food inflation sharply high this year:

And although global food commodities have been dropping in recent months, having surged after the Ukraine invasion, supermarkets and food producers have been criticised for being too slow to pass them on.

But Simon Roberts, the chief executive of J Sainsbury, says the worst of the food price squeeze is over.

Roberts explains:

“We are putting all of our energy and focus into battling inflation so that customers get the very best prices when they shop with us, particularly now as household budgets are under more pressure than ever.

Food inflation is starting to fall and we are fully committed to passing on savings to our customers. Since March, we have invested over £60m in lowering prices, leading on price cuts across more than 120 essentials like bread, butter, milk, pasta, chicken and toilet roll.

Roberts adds that the prices on Sainsbury’s top 100 selling products are now lower than they were in March, “against a market where prices have gone up”.

He adds:

Customers have also saved over £90m since we launched Nectar Prices in April. In addition, we’re offering great value through Stamford Street, our entry-price range and through our biggest ever Aldi Price Match campaign. All of this is underpinned by the continued delivery of our cost-saving programmes.

Sainsbury’s also reports that its general merchandise sales have risen by 4%, but clothing sales were down 3.7%.

Reaction to follow….

Also coming up today

Nature abhors a vacuum. And with the scandal-hit CBI fighting for its survival, the British Chambers of Commerce seems keen to fill the gap.

This morning, several chambers and their member businesses will be attending a breakfast briefing in Downing Street with the chancellor, Jeremy Hunt.

They will discuss how best to drive investment and local economic growth across England, the role of government, and the role of freeports and investment zones, says the BCC, which has just launched an economic forecasting unit in an apparent move to supplant the CBI.

Earlier today, Australia’s central bank held interest rates on hold, after inflation cooled slightly last month.

The agenda

• 7am BST: German trade balance for May.

• 10.15am BST: Treasury committee holds hearing into UK regional imbalances.

• 3pm BST: House of Lords industry and regulators committee hearing on the UK water industry.