Mortgage Rates and Labour’s Pledges: A Recipe for Disaster?

As the UK approaches the election, Labour’s plans for a “genuine living wage” have sparked concerns among economists and banking giants alike. HSBC has issued a dire warning that Labour’s flagship policy could drive up labour costs, leading to a surge in unemployment and, more worryingly, higher mortgage costs for millions.

The impact of Labour’s policies on mortgage rates

The warning comes just days after Labour leader Sir Keir Starmer pledged to bring in a “New Deal for Working People” within his first 100 days in power if elected next month. The plan includes replacing the minimum wage with a so-called “genuine living wage” that reflects the cost of living. However, economists at HSBC warn that raising the minimum wage beyond adjusting it with inflation would result in another larger jump in costs for businesses next year.

“A higher minimum wage could increase costs and reduce efficiency, adding to unit labour costs. This in turn could either push firms into reducing headcount and/or sustain lingering inflation pressures, keeping Bank Rate higher for longer.” - Elizabeth Martins and Emma Wilks of HSBC

The Consequences of Higher Minimum Wage

The impact of Labour’s policies on the economy cannot be overstated. With inflation already proving stubborn in the services sector, a higher minimum wage could push firms into reducing headcount, leading to higher unemployment rates. Moreover, it could sustain lingering inflation pressures, keeping interest rates higher for longer. This would be a further headache for mortgage holders who have been grappling with rising borrowing costs in recent years.

The impact of Labour’s policies on inflation

The Labour Party’s silence on the big spending cuts needed to balance public finances unless the economy grows faster than expected has also raised concerns. HSBC economists warn that Labour might have to raise taxation to make up for the shortfall.

The Bottom Line

Labour’s plans for a “genuine living wage” might seem appealing on the surface, but the consequences of such a policy could be far-reaching and devastating. With mortgage rates already at an all-time high, the last thing the UK needs is another hike. It’s time for Labour to rethink its policies and consider the long-term implications on the economy.

Mortgage rates could soar under Labour’s policies