Why Truss can’t blame mortgage rises on Bank of England

One of the most depressing things about the interviews with the prime minister and Treasury Chief Secretary Chris Philp is that when asked about soaring mortgage rates, they say “interest rates are a matter for the Bank of England”. And so they refuse to engage.

This is a red herring, and a wilful misunderstanding of the Bank of England’s independence.

The Bank will increase the benchmark interest rate it controls on 3 November, and some of that increase may or may not be incorporated in future mortgage rate rises.

The transmission mechanism from Bank Rate to mortgage rates is a long way short of 100%.

These recent mortgage rate rises can be directly traced to Kwarteng’s mini-budget of six days ago.

It prompted investors to dump sterling assets, and thus push up market interest rates.

This market rise in lenders’ funding costs is the cause of the leap in mortgage rates.

So it is a wholly legitimate question to ask Truss, Kwarteng and Philp whether they regret the rise in mortgage rates that they in part have caused, especially since it significantly eats into the cost-of-living help they’ve provided through the energy price guarantee.

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