According to media reports, Sunak told the cabinet that interest rates could reach 2.5 per cent over the next 12 months, but added that financial markets had already priced the increase in.
However, he said that a one per cent increase on a typical mortgage could see payments rise by £700 for borrowers who are not on fixed deals.
In an interview with Mumsnet earlier this week, Sunak said he was reluctant to borrow more to fund public spending as this could cause inflation to rise even further, and consequently lead to additional interest rate rises.
“I am really conscious that I don’t want mortgage rates to have to go up any more than they are already going up. If governments at a time like this borrow lots more money, and we are already borrowing quite a lot, our own interest bill is ticking up, that risks interest rates having to go up even more,” he said.
“That will just add to pressure with mortgage payments to make, and I want to make sure that we don’t do that, and I don’t make the problem worse.”
When asked why he couldn’t raise more money by taxing energy and fuel companies more, similar to other countries, he said the government already did that.
He said that most companies pay 20 per cent in corporation tax, but energy and fuel companies paid 40 per cent.
“The reason we didn’t go down that road is really simple. We are quite lucky that we have a lot of energy in the UK and what we have realised is that we need to invest more it that and that’s why we haven’t gone for an extra tax because I don’t want to discourage investment in our own energy supplies,” Sunak explained.
However, he said if companies did not make those kinds of investments, it would be something he would consider and added that “nothing was ever off the table”.
He said the government would revisit the price cap in the Autumn and said he was aware people were anxious about rising energy bills.
“I have always been clear for the beginning we will see what happens and then depending on what happens to bill then if we need to act and provide support to people then we will. I have always said that,” Sunak said.
“It would be silly to do that now, or last month, when we don’t know what the situation will be like in the Autumn.”