Market News

BY  Lucy Burton

The world's most powerful banker has warned there could be as many as seven interest rate rises in the US this year, as households around the world grapple with a cost of living squeeze.

Jamie Dimon, the chief executive of JP Morgan and Wall Street's longest-serving bank boss, told analysts on Friday there "is a pretty good chance there'll be more than four [increases this year]. It could be six or seven".

"I grew up in the world where Paul Volcker raised interest rates 200 basis points on a Saturday night. And this whole notion that somehow it's going to be sweet and gentle and no one is ever going to be surprised. I think it's a mistake."

The billionaire's forecast coincided with JP Morgan unveiling record annual profits but also rising costs. They come as President Biden is faced with an inflation rate of 7pc after prices rose at the fastest pace for 40 years last month.

As expectations rise that the Federal Reserve might raise rates as soon as March, households in Britain are facing similar pressures.

Rates on new mortgages are expected to surge to their highest level since the Brexit referendum as the Bank of England lifts borrowing costs to stamp out inflation running at a 10-year high.

Market bets on interest rate rises suggest average mortgage rates will jump from 1.5pc to 2.4pc by the end of this year, adding close to £100 in repayments for a typical home loan, according to Capital Economics.

The monthly payment on a £200,000 mortgage with a 25-year term would rise from £800 to £887, adding to a cost of living crunch battering consumers.

Markets have raised their bets on a second Bank of England rate increase in three months after data showed stronger-than-expected growth in November.

The Office for National Statistics revealed the economy returned to its pre-pandemic size for the first time after a 0.9pc jump in GDP, far faster than the 0.4pc growth expected by economists.

Bank of England data on Thursday revealed that lenders have shielded customers from rising interest rates on markets but property experts expect them to pass on higher costs soon.

Andrew Wishart at Capital Economics said: “Any further increase in Bank rate is likely to push up mortgage rates, which is something we haven't really seen that much yet outside of the lowest margin products.

“While I’m expecting this to cool buyer demand and bring the surge in house prices to an end, we aren’t predicting that it will lead to widespread financial distress for households when they come to remortgage."

Markets are betting on the Bank of England raising its base rate from 0.25pc to 0.5pc at February’s meeting. Rate-setters are hoping to curb sharp price rises after inflation hit 5.1pc in November. Investors expect interest rates to go as high as 1.25pc by the end of the year.

Economists said the jump in GDP in November also strengthened the case for rate rises after it left output 0.7pc above its February 2020 level before the pandemic struck.

Growth was driven by a 1.4pc climb in the retail trade as shoppers brought forward Christmas purchases amid concern about shortages. Omicron is expected to dampen activity in December and January but forecasters expect a rapid rebound after ministers held off imposing new restrictions.

James Smith at ING said: “For the Bank of England, this suggests the chances of a February rate hike are rising. While there’s a reasonable case for waiting to get full clarity on omicron, December’s surprise rate hike decision showed that the committee, like that of the Federal Reserve, is less worried by Covid than it was previously.”

Unless GDP falls more than 0.2pc in December, or there is a revision to the data, November’s jump means the UK economy “will either reach or surpass its pre-coronavirus level” across the fourth quarter as a whole, the ONS said.