(Bloomberg) -- Britain has 320,000 more people living in poverty as a result of the Bank of England’s decision to raise borrowing costs to the highest level in 16 years, the Institute for Fiscal Studies estimated.
The economics research group warned that the official poverty measure are understating the financial pain caused by the central bank’s most aggressive tightening cycle in decades, which is still feeding through to mortgage costs.
The figures highlight the impact the BOE’s fight against inflation is having on many mortgage holders, some of whom are shouldering sharply higher payments. While savers, many of whom are older, have benefited from higher interest rates, younger working families with relatively new home loans have less capacity to absorb the hit to their finances.
While the data still suggest that only a small proportion of Britain’s roughly 10 million mortgage holders were pushed into poverty, analysis by the BOE last month showed continuing pressure on borrowers. It said that monthly repayments will rise by roughly £180 ($232.35) for a typical mortgage holder renewing deals by the end of 2026, up by more than a quarter. The BOE said about 400,000 households will see payments jump 50% or more.
The official poverty measure is defined as living a household with disposable income below 60% of the median household income in 2010/11 when adjusted for inflation.
“Rising mortgage rates have played and are likely to continue to play an important role in many households’ living standards,” said Sam Ray-Chaudhuri, a research economist at IFS. “At a time when rates of deprivation and food insecurity have risen substantially, poverty statistics that hide the real scale of these increases risk policymakers missing what is truly happening to poverty.”
Mortgage rates have cooled from highs they hit last summer, but borrowing costs for homeowners remain painfully high and have crept up again since January after the BOE delayed plans to begin cutting rates. Moneyfacts data show that two-year fixed mortgage rates are at 5.79%, up from about 5.5% in January.
The IFS said the official poverty statistics likely understate the disproportionate impact higher energy and food prices had on lower-income households and pensioners. It added that the data also mismeasured the impact of higher mortgage-interest payments.
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