The drop in the pound is sending UK rate expectations to 6% in 2023 - and that means a spike of 73% for some mortgage payments, economist says

• Expectations are rising that the UK's benchmark rate will reach 6% in 2023 on the back of the pound's slide.
• That could mean monthly payments for some refinanced mortgages could jump by 73% to nearly £1,500 in the first half of next year, said Pantheon Macroeconomics's chief UK economist.

The pound's steep slide has propelled expectations the UK's key interest rate will more than double by next year — and that's setting up some homebuyers to face potentially unaffordable payments for refinanced mortgages, according to one British economist

"If mortgage rates rise to 6% – as implied by markets' current expectations for Bank Rate – the average household refinancing a 2yr fixed rate mortgage in the first half of 2023 will see *monthly* repayments jump to £1,490, from £863. Many simply won't be able to afford this," Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wrote in a tweet.

In dollar terms Monday, monthly payments could rise to $1,593 from $923.

A 2-year fixed rate mortgage is the shortest-term offered in the UK for a fixed home loan, according to product comparison website Money.co.uk.

The British pound hit a record low against the dollar Monday as investors feared the UK's government proposed £45 billion ($48.6 billion) mini-budget would increase inflation and the country's debt load. UK bond prices were slammed lower, sending yields to multiyear highs.

The benchmark 10-year yield soared above 4.3% for the first time since 2010, and the 2-year gilt yield hit its highest since 2008, above 4.5%. Also, markets now see more risk in the UK's 5-year bonds than those for the most indebted eurozone countries.

The pound was recovering from historical lows when it began to swing down again after Bank of England Governor Andrew Bailey said Monday it was watching repricing in financial markets but didn't announce emergency action aimed at aiding the pound's value. The UK's central bank has raised the benchmark interest rate to 2.25% in seven hikes since December to control inflation.

"So the choice the [Monetary Policy Committee] faces is either to defend sterling and risk a banking crisis, or let it fall further and accept that inflation will remain above target as far as the eye can see. There are no good options, but the latter would be less damaging," Tombs wrote to his more than 10,000 followers on Twitter.

The central bank's next meeting is scheduled for November 3. Inflation was 9.9% in August, slightly easing from 10.1% in July, according to the Office for National Statistics.