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Homeowners told not to expect interest rate cut until 2025 as mortgage squeeze goes on

Millions of homeowners struggling to pay their mortgage bills were warned on Wednesday not to expect a cut in interest rates until 2025.

The Organisation for Economic Co-Operation and Development also stressed that the squeeze on disposable incomes in the UK was set to get worse.

In its November Economic Outlook, the Paris-based think tank said that the Bank of England was not expected to increase interest rates.

But it added: “Reductions in policy rates are projected to start in the second half of 2024 in Australia, Canada and Korea and in early 2025 in the United Kingdom.”

The OECD also emphasised the UK would see the second-slowest GDP growth of the world’s G7 advanced economies, at 0.7 per cent in 2024 and 1.2 per cent in 2025.

It explained: “Private consumption will pick up as real wages finally grow due to fast nominal pay growth and lower consumer price inflation.

“However, monetary tightening is weighing on housing and business investment, higher fiscal pressure will reduce household disposable income, and uncertainty will continue to be a drag on trade.”

Interest rates have been increased to 5.25 per cent, a 15-year high, to combat high inflation but this has hiked mortgage costs, as well as leading to higher savings rates.

Banks, though, have been accused of being quick to raise mortgage rates and slower to better reward savers.

Andrew Bailey, governor of the BoE, has stressed that people should not expect an interest cut in the “foreseeable future”.

Growth across the global economy has been stronger than expected but is beginning to slow as higher interest rates, weaker trade and lower business and consumer confidence take a toll, the OECD said.

Britain is forecast to have the slowest GDP growth this year and next year, other than Germany, of the G7 which also includes France, Italy, the US, Canada and Japan.

Meanwhile, Britain is also set for the highest inflation rate across the G7 this year, averaging at 7.3 per cent for 2023, up from its previous forecast of 7.2 per cent.

It comes despite Rishi Sunak achieving his pledge to halve inflation by the end of the year, after inflation dropped sharply last month to its lowest level in two years, hitting 4.6 per cent.

A Treasury spokesman said: “While inflation is falling, now we are taking the long-term decisions needed for growth.”

But shadow Chancellor Rachel Reeves stressed: “These figures expose that working people are worse off under Rishi Sunak.”