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

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Water companies must pay to fix illegal sewage discharges rather than pass the cost to customers, lawyers for the charity WildFish are to argue in the high court today.

The campaign group will allege at a judicial review that the government’s ?56bn plan to reduce raw sewage dumping from storm overflows is illegal. More here…

Thames Water has been fined ?3.3m for a “reckless” incident in which “millions of litres” of undiluted sewage was pumped into rivers near Gatwick Airport in 2017.

A two-day sentencing hearing at Lewes Crown Court was told there was a “significant and lengthy” period of polluting the Gatwick Stream and River Mole between Crawley in West Sussex and Horley in Surrey on October 11 2017.

Judge Christine Laing KC said on Tuesday that said she believed Thames Water had shown a “deliberate attempt” to mislead the Environment Agency over the incident, such as by omitting water readings and submitting a report to the regulator denying responsibility.

Thames Water had pleaded guilty on February 28 to four charges relating to illegally discharging waste in October 2017.

This penalty comes as the utility giant, which serves 15 million households across London and Thames Valley, faces concerns over its future amid mounting debt.

The record fine against a water company for illegal discharge of sewage is held by Southern Water at ?90m for nearly 7,000 incidents across Hampshire, Kent and Sussex in a case brought by the Environment Agency in 2021.

Food prices in Britain will not return to where they were before Russia’s invasion of Ukraine, the boss of Sainsbury’s has warned.

Hours after announcing that food inflation was falling, Simon Roberts predicted that a permanent rise in labour costs will mitigate the easing of commodity and energy pressures.

Roberts has cautioned that food inflation will still be a challenge going forward as higher labour costs were now fixed into the operating models of food retailers and suppliers.

He said that while falls in commodity costs had driven recent price cuts in fresh food products, such as milk, butter, bread, pasta and rice, prices of packaged goods would be more stubborn.

Roberts told reporters:

“We should just remember that energy costs are still high and labour costs have been elevated permanently.

“So we would expect inflation to continue to improve, but it’s not going to go back to where it was before because the cost of producing food is clearly elevated from where it was a year or two back.

Basic pay is growing by 7.2% per year, according to the latest labour market data – the fastest rate on record, but still slower than CPI inflation which was 8.7% in April and May.

Paul Welch, the CEO of the London-based adviser LargeMortgageLoans.com, fears that mortgage rates will continue to rise until inflation is brought under control.

Welch says:

As long as swap rates, the rates which banks pay to borrow money, remain high, then fixed rates for mortgages will continue to rise.

If core inflation doesn’t come down significantly this month, or God forbid rises, then interest rates and swap rates will continue to go up and up. It gives me no pleasure to say that we could realistically see some fixed rates reach 7% before the summer is out.

Currently, 10- and 15-year swap rates are the best value for money, so if you like the stability of a fixed rate and you can afford to fix for the long term, then you could try a 10-year fixed rate mortgage, with a rate of less than 5% currently.

The Liberal Democrats’ Treasury spokesperson, Sarah Olney, has urged the government to do more to help borrowers, after the average five-year fixed mortgage deal surpassed 6% this morning.

She said:

This is yet more mortgage misery for homeowners on the brink.

Rishi Sunak asking homeowners to hold their nerve is sounding more tin-eared by the day.

It shows this Conservative government is just totally out of touch.

Conservative ministers sent mortgages spiralling through all their chaos and incompetence; now they are refusing to lift a finger to help.

The Lib Dems are proposing a ?3bn emergency mortgage protection fund to protect people whose homes would otherwise be repossessed due to rising interest rates.

The bakery and coffee chain Le Pain Quotidien has shut nine UK sites with the loss of 250 jobs after falling into administration.

BrunchCo UK, the company trading as the high street chain, has confirmed it hired administrators from Kroll.

Eight cafes in London and one in Oxford’s recently refurbished Westgate Centre have shut as a result of the insolvency.

The Le Pain Quotidien site at St Pancras railway station run by sister company SPQ Holdings Limited will continue to operate.

The bad news for mortgage holders is that UK base interest rates are expected to keep climbing from their current level of 5%.

The Bank of England is expected to vote for another increase at its next meeting in August. This morning a half-point rise to 5.5% is seen as a 75% chance by the money markets.

Rates are expected to hit 6% by November and peak at 6.25% in February or March, before starting to drop next autumn.

Elliott Culley, a director at the mortgage broker Switch Mortgage Finance, says:

Unfortunately, under current forecasts, rates still haven’t reached their peak. Five-year fixed rates have and continue to be cheaper than two-year fixes and some clients have decided to fix for longer due to the uncertain outlook.

There are still five-year fixed rates under 6% and customers should remember this [Moneyfacts’ data] is an average rate. The current predictions still show rates should reduce by the end of 2024, albeit not to the low levels seen in the past.

If you want to understand why the bank bosses are being called in to the FCA this week, look no further than Lloyds Bank’s savings rates, my colleague Miles Brignall writes.

The UK’s biggest bank is currently paying its easy access savers 0.90% on balances of up to ?24,999. It pays 1.15% on balances from ?25,000 to ?99,999, and 1.50% on balances of ?100,000 or more.

Barclays Everyday saver pays 1%, while NatWest’s savings rates are a tiny bit better – starting at 1.11% – but nowhere near the best rates.

Customers who switched their balance to the Family Building Society would earn 4.35% with its instant access online saver.

Just in: the drinks retailer Naked Wine has revealed that sales in the first quarter of the financial year have been below expectations.

Naked blames “reduced levels of new customer recruitment”. The company enjoyed a surge of business in the Covid-19 lockdowns but has struggled after pandemic restrictions were lifted.

Naked has delayed the release of its audited results for last year, which had been due on Thursday, but reiterated its earlier guidance.

In another surprise move, the founder Rowan Gormley is returning to chair the company again. Gormley, who owns almost 3% of Naked’s shares, will try to spur a drive for new customers.

Naked tells the City:

As indicated in today’s trading update, it is clear that to deliver sustainable, profitable growth the group needs to recruit new customers at a higher rate.

Having founded Naked Wines in 2008 and built the business to nearly ?200m of revenues, Rowan is well placed to support that goal.

Despite the squeeze from higher interest rates, Sainsbury’s says it has not seen a rise in bad debt at its banking business since its last update in April.

The chief financial officer, Blathnaid Bergin, told reporters this morning:

The bank is performing in line with our expectations.

We have not seen anything new on bad debt.

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.

More here:

Savings rates continue to lag far behind mortgage rates.

Moneyfacts reports that the average one-year fixed savings rate has dropped to 4.80% today, down from 4.82% on Monday.

The average easy access savings rate has risen to 2.45%, up from 2.43%, while the average rate on a one-year fixed cash ISA rate has crept up to 4.48% from 4.47%.

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.