In an unexpected turn of events, core inflation has reached a staggering 31-year high this May, signalling that the Bank of England might have to adjust interest rates beyond initial projections.

Contrary to expectations of economists and the Bank of England, inflation did not diminish, but instead, ascended to 7.1% this May. This phenomenon has sparked discussions about raising interest rates potentially up to 6% to contain the surge.

Currently, the Bank's Monetary Policy Committee (MPC) is in the midst of their interest rate setting meeting. Some experts now predict an increase in the Bank Rate by 0.5% - a stark deviation from the previously expected 0.25% - which could result in a 5% rate being announced later today.

Why exactly is this happening? As inflation begins to subside in the US and Eurozone, it remains steadfastly high in the UK. The main driver of this persistent inflation is wage increases, shifting away from external factors like geopolitical tensions in Ukraine. In fact, inflation previously fuelled by rising fuel prices saw a decline in May.

This context means that the UK is dealing with a more entrenched inflation, suggesting that it will take a more significant amount of time and higher interest rates than previously thought to curb it.

Turning our attention to the mortgage market, we see a noticeable response to the inflation scenario, with almost 400 products withdrawn for repricing within the past month. As a result, the average cost of a two-year fixed-rate mortgage has climbed to 6.15%, and five-year rates now sit at 5.79%.

For those grappling with the thought of mortgage distress, it's important to remember that lenders have committed to providing flexibility and tailored support. Options like increasing the mortgage term, switching to an interest-only mortgage, or even offering a short-term payment holiday could be potential avenues for relief. Therefore, should you find yourself struggling to keep up with mortgage repayments, reaching out to your lender at the earliest is highly recommended.

As we navigate these turbulent economic seas, it's essential to stay informed and prepared. The road ahead might be rocky, but with the right knowledge and support, it is definitely navigable.

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