Homeowners facing nightmare mortgage rates as inflation STAYS at 8.7 per cent

The cost of motor fuel has fallen, offsetting the rise in other areas and putting the biggest downward pressures on inflation.

ONS chief economist Grant Fitzner said: “After last month’s fall, annual inflation was little changed in May and remains at a historically high level.

“The cost of air fares rose by more than a year ago and is at a higher level than usual for May.

“Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”

While food and energy prices are conventionally volatile and impacted by global commodities, Bank of England economists will be concerned that 'core' and services inflation remains high.

Such rises are expected to prompt substantial and sustained rises in interest rates, which will have a knock-on impact on mortgages.

Economists keep a watchful eye on core inflation for signs of an overheating economy, as the index excludes food, energy, alcohol and tobacco prices.

Stubbornly high core inflation has risen to 7.1 per cent, the highest annual rate increase since March 1992.

Fitzner notes that core inflation is "probably driven, at least in part, by the increase we've seen in wages."

Inflation in the US is floating around 3 per cent, while France and Germany are closer to 6 per cent.

Chancellor Jeremy Hunt said: "Inflation is the biggest, most invidious, tax rise the British people are facing right at the moment because it is eroding the value of their salaries - so that is our primary priority."

He added: "We need to squeeze every last drop of high inflation out of the economy."

A proposed increase in the interest rate on Thursday from 4.5 per cent to 4.75 per cent now seems inevitable, leaving rates at their highest since 2008.

While the Bank of England gears up for its 13th consecutive interest rate hike, industry leaders are pleading for a period of respite for homeowners.

Ying Tan, the new CEO (subject to FCA approval) of whole-of-market mortgage brokers Habito told GB News: "I urge the Bank of England to take a momentary pause in their rate hikes and allow the previous 12 months of continuous increase to take effect before deciding their next action.

"The anxiety and worry in the market is real and if this relentless onslaught continues there will be a bigger problem in the economy that we will all have to face."

When rates were last this high, on the eve of the financial crisis, around half of mortgages were set at fixed rates meaning half of homeowners would feel the pinch immediately.

Today, only 15 per cent are on variable rates meaning that the vast majority are insulated from extra cost in the short term but the 800,000 people set to remortgage their homes in 2024 will face a jump in cost.

The Bank of England target for inflation is set at 2 per cent, while Prime Minister Rishi Sunak pledged to half inflation as one of his five priorities.