04 Nov Interest rate rise: What will it mean for you?
The Bank of England’s rate-setting Monetary Policy Committee has signalled it’s getting ready to increase interest rates for the first time since August 2018.
In the minutes to its latest meeting, the Bank said: “It will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.”
However, it added that now is not quite the time for an increase, citing “near-term uncertainties” in the economy. The Committee voted 7-2 to maintain Bank Rate at 0.1% in November, its next meeting is on December 16.
The two members who voted for a rise were Dave Ramsden and Michael Saunders, who wanted rates hiked to 0.25%.
Rates have been at all time lows of 0.1% since March 2020, when the MPC slashed them in an effort to protect the economy from the impact of the Coronavirus pandemic.
A rise in rates will see mortgages become more expensive for anyone not on a fixed-rate deal, but could see savers earn more interest.
Assuming it’s passed on in full by banks, an increase to 0.25% will add around £120 to the cost of mortgages, but net savers just £15 extra in interest a year for every £10,000 they have in the bank.
James Andrews, senior personal finance editor at money.co.uk, said: “A decision to raise rates is a controversial one.
“On the one hand, the Bank of England is tasked with the job of keeping inflation under control. On the other it is asked to keep the economy growing.
“While making borrowing more expensive and savings more rewarding should, theoretically, see people spend less in shops and put pressure on retailers to cut prices – that doesn’t work if what’s pushing prices up is the cost of energy or raw materials.
“That means that, rather than pushing prices down, a rise in rates might simply force people to spend less – as more of their money is taken from pay packets by mortgages.
“That could be terrible news for an economy still struggling to escape the impact of Coronavirus.
“However, the Bank failing to act as inflation surges could see the markets lose confidence in its ability or willingness to tackle inflation – with knock-on effects on the pound and the how much the Government pays to borrow money.
“A rise in rates is typically passed on to the public in the form of bigger monthly payments for anyone on tracker or standard variable rate mortgages, while people on fixed-rate deals are protected until their current offer expires.
“Savers on variable rate deals are also likely to see higher interest rates, although traditionally this has been passed on more slowly than by mortgage providers.
“Our advice to anyone worried about the cost of their mortgage rising as a result of the Bank’s decisions is to compare deals now, and see if you can lock into an affordable rate.
“Anyone struggling to make repayments should speak to their lender as soon as possible to see if there is anything it can do to help. You can also get free, independent debt advice from Stepchange and National Debtline.”
