The International Monetary Fund (IMF) has issued a caution to the Bank of England about the dangers of keeping interest rates high in the wake of the predominant use of fixed-rate mortgages in the UK. This advice comes amid concerns of reducing consumer spending, falling housing prices, and increasing defaults. The Bank of England had raised interest rates 14 times between December 2021 and August 2023, stabilising borrowing costs at 5.25%, despite a fall in annual inflation from 6.7% to 3.4%. The IMF highlighted the attenuated impact of high-interest rates in economies with a majority of fixed-term mortgages, such as the UK. It also pointed out the expansion of the private credit market to $2.1 trillion, marking the rise in lending by non-bank financial institutions as a potential risk factor.

In a separate development, the Organisation for Economic Co-operation and Development (OECD) reported a decline in food inflation among its 38 member countries to levels not seen since before the Ukraine conflict, now at 5.3% as of February from 6.3% in January. This marks a steady decrease for the 15th consecutive month. Despite these findings, some nations, including Turkey, have witnessed a surge in food inflation, mainly due to a depreciating local currency. The UK, in contrast, saw a moderate increase in food and non-alcoholic beverage prices at 5% over the year up to February 2024. The OECD’s report also noted significant differences across global economies, with inflation in G20 countries rising to 6.9% in February, attributed to increases in China, Saudi Arabia, Indonesia, and Argentina.

Both these reports underscore the complexities of the current global economic climate, with particular emphasis on the UK’s challenge in balancing monetary policy amidst fixed-rate mortgage prevalence and the broader international trend of fluctuating inflation rates.