That combination—muted wage growth but elevated borrowing costs—could further test affordability in the mortgage market. Lenders are already facing challenges in stress-testing applicants, while borrowers on variable rates remain particularly exposed.
The Labour government has pledged to improve labour participation and stimulate growth, but its decision earlier this year to reject disability benefit reforms has divided opinion among economists. The House of Lords Economic Affairs Committee has separately called for urgent reform to the health-related benefits system, warning that rising welfare dependency is not sustainable.
For the mortgage sector, the connection is direct: a larger pool of inactive individuals means fewer prospective borrowers entering the market, while stretched public finances leave little room for tax or spending measures that could support housing.
Bailey’s remarks, delivered alongside Christine Lagarde of the European Central Bank and Kazuo Ueda of the Bank of Japan, reinforce the message that Britain’s economy faces headwinds not easily resolved. For lenders, brokers and housing professionals, the outlook is one of tight affordability conditions, a weaker base of new buyers, and a policy environment shaped by the dual challenge of low growth and persistent inflation.