Homeowners struggling to make ends meet are getting less of a break as was hoped with inflation levels.  Spending power remains weak, fuel costs are high, and interest rates are expected to become more expensive despite the Bank of England’s Monetary Policy Committee (MPC) leaving the standard base interest rate unchanged at 0.5%.  The problems in the eurozone and the lack of economic growth in the UK are contributing to a cautious outlook by lenders.  The result is they are moving their interest rates on remortgages and other loans upward as funding costs for them become more expensive. 

Recently the Bank’s governor, Sir Mervyn King, warned that inflation would remain above the goal level of 2% throughout the year and that growth forecasts have been cut from 1.2% to 0.8%.  He also stated that the UK would not escape the problems in the eurozone.  He warned that recovery would be “slow and uncertain” as there is a potential “storm heading our way from the continent”.

He said, “We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country's history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.

“The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2pc strikes me as wholly unrealistic.

“We don’t know when the storm clouds will move away. But there are good reasons to believe that growth will recover and inflation will fall back. Along the way we will no doubt be buffeted by winds from unexpected quarters.”