Struggling families risk losing their homes due to surging mortgage payments following chancellor Kwasi Kwarteng's mini-budget, the Liberal Democrats have warned.
The Bank of England is expected to increase interest rates by a significant margin in November in a bid to control inflation and calm market turmoil following Kwarteng’s package of announcements on Friday.
The chancellor sent the pound tumbling after he revealed sweeping tax cuts benefitting the biggest earners, along with vast increases to government borrowing in a bid to grow the economy.
Some analysts predict the base interest rate – currently at 2.25% – will have to rise to as high as 6% next year.
The Lib Dems have demanded parliament be recalled after BoE Chief Economist Huw Pill signalled the cost of borrowing would have to go up significantly to protect the pound and keep a lid on inflation.
In a speech to the Barclays-CEPR International Monetary Policy Forum on Tuesday, Pill said: “It is hard not to draw the conclusion that all this will require significant monetary policy response."
Responding to Pill’s comments, Lib Dem Treasury spokesperson Sarah Olney added: “This will be a bitter pill to swallow for homeowners facing mortgage bill agony because of the government’s botched budget.
“Struggling families already unable to keep up with the cost of living now risk losing their homes. It is now or never to save homeowners on the brink.
“The government must bring in an emergency support package for struggling mortgage borrowers ahead of month’s likely rate rise.
“Liz Truss and Kwasi Kwarteng must recall parliament now to fix their budget which has betrayed homeowners and trashed the great British pound.”
Watch: Bank of England will ‘not hesitate’ to raise interest rates amid market turmoil
Monthly mortgage rates will increase immediately for around 2 million people on tracker or variable plans due to higher interest rates on their payments if the BoE hikes the base rate .
Around 1.8 million homeowners will also be coming to the end of their fixed-rate deal next year and therefore be liable to pay higher rates, according to UK Finance.
Some lenders have already began withdrawing mortgages amid uncertainty over how far rates would rise.
At a meeting on Tuesday with institutional investors, the chancellor reaffirmed his intention to explain how he will get debt falling as a percentage of GDP in a medium-term fiscal plan to be published on 23 November alongside a new set of economic forecasts from the Office for Budget Responsibility (OBR).
Kwarteng also emphasised the importance of the “supply side” reforms ministers will set out in the coming weeks, including his “Big Bang 2.0” reforms to further liberalise the financial market regulations, supporting growth.
“We are confident in our long-term strategy to drive economic growth through tax cuts and supply side reform,” he told them, according to a Treasury readout of the meeting.