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England's hopes of an Ashes comeback are heartbreakingly ended by rain that leaves the fourth Test as a draw and ensures Australia retain the urn.

England keep their Ashes hopes alive by beating Australia by three wickets in another nerve-shredding Headingley finale.

Expectations rise sharply to anticipate highest borrowing costs since 1998
Investors are betting that UK interest rates will climb to 6.5 per cent by March next year — the highest level since 1998 — in a move that will heap even more pain on mortgage borrowers.

The peak in UK interest rates priced by swaps markets has risen dramatically in recent weeks, from 5 per cent as recently as May to 6.25 per cent following the Bank of England’s unexpected decision to raise interest rates to 5 per cent in June.

“There’s a self feeding dynamic here . . . but it’s not a panic yet,” said Peter Schaffrik, economist at RBC Capital Markets.

“As rates are going higher, those people who thought yesterday that rates were too high and were opposing more increases — they have to throw in the towel and as they do that rates go higher”.

Bank of England governor Andrew Bailey told the BBC on Thursday that he wanted to get inflation “back to where it needs to be and then we can assess what level interest rates should be at going forward”.
“I understand very much the difficulties that people face,” Bailey added. “Unfortunately this is how we have to get inflation down. If we don’t get inflation down, it gets worse and we’ll have to put up interest rates more.’’

Imogen Bachra, head of UK rates strategy at NatWest, said the market had taken this as a “green light to price in ever more rate hikes”.
Headline prices rose 8.7 per cent in the year to May, with core inflation, which strips out volatile food and energy prices and which is viewed as a better indication of underlying price pressures, accelerating ahead of expectations to 7.1 per cent.

Benchmark two-year gilt yields, which are highly sensitive to interest rate expectations, rose by 0.08 percentage points on Thursday to 5.46 per cent, the highest level since 2008. The average five-year fixed-rate UK mortgage has already risen above 6 per cent.

Last week, JPMorgan economist Allan Monks said in a note to clients that the BoE could be forced to push rates as high as 7 per cent if inflation proved even more stubborn than expected, although his central expectation remained that rates would peak at 5.75 per cent in November.

While rate expectations have risen, sterling has weakened in recent weeks, from a peak of $1.2838 per cent in June to $1.2708 on Thursday.
Analysts highlighted this as a concern because in an environment where interest rate expectations are rising compared with other countries, sterling should be strengthening. The UK is expected to increase rates by more than the Federal Reserve and the European Central Bank.

Lyn Graham-Taylor, a senior strategist for Rabobank, said that sterling had failed to strengthen because “rate rises are not a function of economic strength — they are a function of inflation being worse in the UK than other places”.
“A lot of it is an ‘I don’t want to touch sterling’ trade’ — it’s uncertainty over the future.”

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The average five-year, fixed-rate mortgage has topped 6 per cent for the first time since November as banks and building societies continue to push up rates.

Five-year fixes have risen from 4.97 per cent to 6.01 per cent between the start of May and today, according to the financial data analyst Moneyfacts, adding £1,488 a year to repayments on a typical 25-year mortgage worth £200,000.

It is the first time the average rate has reached 6 per cent since November 21, in the aftermath of the Liz Truss mini-budget that sent borrowing costs soaring. Before that, rates had not been so high since December 2008, in the heat of the financial crisis.

Rates have shot up over the past two months on the back of consumer price inflation that eclipsed expectations. The rate has remained stuck at 8.7 per cent in successive months, the Office for National Statistics said.
This has fuelled expectation that the the Bank of England will again increase the base rate, presently 5 per cent, and keep it higher for longer.

The base rate has risen 13 times since an all-time low of 0.1 per cent in December 2021. These expectations of future Bank of England rates, called swap rates, are used by banks to price fixed-rate mortgages.
Five-year mortgage rates are below two-year rates, which now average 6.47 per cent, because of the expectation that rates will fall away in time. Two-year fixed rates peaked at 6.65 per cent on October 20.

When will interest rates fall?
Last week the Bank governor, Andrew Bailey, said rates were likely to stay higher for longer because of “more persistent” inflation. Hope of a fall remains because so many of the big banks have pushed their mortgage rates up so much.

Nick Mendes, of the mortgage broker John Charcol, said: “The majority of the big high street lenders have already made substantial increases to their rates which means they currently sit outside of the best buys.
“Fingers crossed that rates might stop rising soon if swap rates calm down, although I still think we may see further increases in the future if there isn’t substantial progress in bringing down inflation.”

Banks including HSBC and Santander have been forced to increase mortgage rates or even turn away new customers at short notice over the past few weeks because they have found themselves at the top of the best buy tables and inundated with demand.

David Hollingworth, from the broker L&C Mortgages, said: “Maybe the increases will not be as significant . . . Things haven’t levelled out yet. We should hope to find a bit of a level in the coming weeks, but it might be weeks. We just need some good news.”

Even though five-year deals are cheaper than two-year ones, fewer homeowners are taking them. Riz Malik, director of the broker R3 Mortgages, said: “Most of our clients are now choosing two-year fixes, because a significant number believe current rates cannot be maintained indefinitely and that, eventually, interest rates will come down.” The portion of new mortgages taken out on a five-year fix fell below 50 per cent in April for the first time since rates began rising in 2021, according to the trade association UK Finance.

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