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Highlights
- Prime Minister Boris Johnson has warned of a 'very severe' inflationary crisis if the government responds to the high inflation by offering more benefits.
- Earlier, Chancellor Rishi Sunak warned that mortgage repayments could rise by over £1,000 a year.
Millions of Britons are facing a squeeze in their pockets as inflation has reached a 30-year high. While the government has announced relief packages to offset the pressure to some extent, the inflation rate is expected to rise further following the removal of the energy cap from 1 April, which had added more strain to the UK household budgets.
In a recent interview, Prime Minister Boris Johnson warned of a 'very severe' inflationary crisis, saying that if the government responds to the high inflation by offering more benefits, it may have knock-on effects, eventually leading to an inflationary spiral. He added that this would result in a rise in the interest rates for mortgages.
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Image description: People are facing a squeeze in their pockets as inflation has reached a 30-year high.
The PM's comments came just days after Chancellor Rishi Sunak warned that mortgage repayments could rise by over £1,000 a year. According to reports, he is said to have told his cabinet colleagues that interest rates may reach 2.5% next year.
Notably, the cost of living crisis has forced people to spend more than they did a year ago. As per a survey by the Office of National Statistics (ONS) conducted between 16 March and 27 March 2022, around three in 10 adults found it difficult to afford housing costs due to an increase in loans or mortgage payments, while 3% said they were behind on payment of rent or mortgages. Nearly 19% of borrowers said that their mortgage payments have increased in the last six months.
Let us take a look at how mortgage stocks reacted to the news.
NatWest Group plc (LON: NWG)
The financial services provider is among the biggest players in the UK and also offers its services in several other countries. Last week, NatWest group gained the spotlight after its executives prevented a rebellion by shareholders caused by a contentious new pay policy that could raise CEO Alison Rose's pay package to £5.2 million a year.
NatWest's shares were trading at GBX 221.10, down by 0.27% at 9:11 am GMT+1 on 4 May 2022. Over the last one year, the shares have appreciated by 12.46%. The company's current market cap stands at £23,006.69 million.
Lloyds Banking Group Plc (LON: LLOY)
Another constituent of the 'Big 4', or the four dominant players in the UK's banking industry, the retail and commercial banking group lent more than £16 billion to over 80,000 first-time homebuyers in FY2021. For the first quarter of 2022 ended March 31, the group reported a net income of £4.1 billion, while its statutory profit after tax stood at £1.2 billion.
Lloyds Banking Group's shares were trading at GBX 46.10, down by 0.17% at 9:16 am GMT+1 on 4 May 2022. Shares of the FTSE 100-listed company have given a return of 1.35% to its shareholders over the last one year. As of 4 May 2022, the company has a market cap of £31,963.08 million.
OSB Group Plc (LON: OSB)
OSB Group caters to commercial and retail clients and offers financial services such as mortgages, credit consultancy, and savings products. The FTSE 250 constituent saw a strong performance in 2021, with its statutory profit before tax climbing to £522.2 billion.
The company's shares were trading at GBX 559.00 at 9:18 am GMT+1 on 4 May 2022. Its market cap currently stands at £2,506.29 million, and its shares have given a 16.65% return to the investors in the past one year.
Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.
