This article is from the source 'bbc' and was first published or seen on . The next check for changes will be

You can find the current article at its original source at https://www.bbc.co.uk/news/business-57764601

The article has changed 71 times. There is an RSS feed of changes available.

Version 12 Version 13
UK interest rates: How high could they go? UK interest rates: How high could they go?
(1 day later)
The fall in the value of the pound has led to predictions that the Bank of England will raise interest rates sharply. The Bank of England has warned interest rates could rise again after the value of the pound plummeted, following the government's decision to cut taxes and borrow more.
The pound dropped following the government's decision to cut taxes and borrow more. That could have a big impact on the cost of borrowing and people's finances.
How high could interest rates go?How high could interest rates go?
On 22 September, the Bank of England raised rates by 0.5 percentage points to 2.25% - the highest level for 14 years.On 22 September, the Bank of England raised rates by 0.5 percentage points to 2.25% - the highest level for 14 years.
They could reach 6% next year. That estimate is based on the prices investors are paying to borrow money, according to data provider Bloomberg. It said it will "not hesitate" to hike interest rates further after the pound fell to a record low against the US dollar.
There were suggestions the Bank could call an emergency meeting to hike rates. One estimate suggests rates could reach 6% next year. That's based on the price investors are already paying to borrow money, according to data provider Bloomberg.
Following the speculation, the Bank released a statement saying it will make a full assessment at its next meeting of its Monetary Policy Committee (MPC), which is scheduled for 3 November. The Bank's monetary policy committee meets every month to decide interest rate policy.
It added that it would "not hesitate to change interest rates by as much as needed to return inflation to the 2% target". There had been some speculation it would call an emergency meeting to deal with the crisis, but the Bank released a statement confirming it will wait until the next scheduled meeting on 3 November.
The Bank is under pressure to put rates up because it has a target to keep inflation at 2%, but prices are currently rising at about five times that level.
How do interest rates affect me?How do interest rates affect me?
MortgagesMortgages
Just under a third of households have a mortgage, according to the English Housing Survey. Just under a third of households have a mortgage, according to the government's English Housing Survey.
Of those, three-quarters have a fixed mortgage, so will not be immediately affected. When interest rates rise, about two million people on tracker and variable rate deals see an immediate increase in their monthly payments.
The rest - about two million people - will see their monthly repayments rise. The recent increase to 2.25% means those on a typical tracker mortgage pay about £49 more a month. Those on standard variable rate mortgages face a £31 jump.
The decision to raise rates to 2.25%, means those on a typical tracker mortgage will have to pay about £49 more a month. Those on standard variable rate mortgages will see a £31 increase. This comes on top of increases following previous recent rate rises. Compared with pre-December 2021, tracker mortgage customers are paying about £216 more a month, and variable mortgage holders about £163 more.
The higher interest rates go, the higher those monthly payments will go. There is also an impact on fixed deals, which about three-quarters of mortgage customers have.
New house buyers, or anyone seeking to remortgage, will also have to pay more. Their monthly payments may not change immediately, but with lenders now anticipating higher rates, any new deals will be more expensive. That means new house buyers - or anyone seeking to remortgage - will also have to pay more.
This comes on top of increases following previous recent rate rises. Compared with pre-December 2021, tracker mortgage customers will be paying about £216 more a month, and variable mortgage holders about £163 more. An average two-year fixed deal which was 2.29% in November last year is now 4.24% - a difference of hundreds of pounds each month in repayments for a typical borrower.
Some lenders are also pulling deals while they recalculate prices, meaning there is less choice available.
'I was ready to buy a house, now I'm totally lost'
Credit cards and loansCredit cards and loans
Bank of England interest rates also influence the interest charged on things like credit cards, bank loans and car loans.Bank of England interest rates also influence the interest charged on things like credit cards, bank loans and car loans.
Even ahead of the latest decision, the average annual interest rate was 19.9% on bank overdrafts and 18.57% on credit cards in July. Even ahead of the latest decision, the average annual interest rate in July was 19.9% on bank overdrafts and 18.57% on credit cards.
Lenders could decide to increase these fees if interest rates rise again. Lenders could decide to put prices up further, in expectation of higher interest rates in the future.
'If rates go up I'll owe £250 a month more on my loans''If rates go up I'll owe £250 a month more on my loans'
SavingsSavings
Individual banks usually pass on any interest rate rises to customers. Individual banks and building societies usually pass on interest rate rises to customers.
Savers get a higher return on their money, and there is now more competition in the savings market. But although this means savers get a higher return on their money, interest rates are not keeping up with rising prices.
However, for people putting money away, interest rates are not keeping up with rising prices. This means the value of cash savings is falling in real terms.
Why does raising interest rates help lower inflation? Why does increasing interest rates help lower inflation?
The Bank has been putting rates up to combat rising prices - known as inflation.The Bank has been putting rates up to combat rising prices - known as inflation.
Prices are going up quickly worldwide, as Covid restrictions have been eased and consumers spend more. Prices are going up quickly worldwide, as Covid restrictions have eased and consumers spend more.
Many firms have problems getting enough goods to sell. And with more buyers chasing too few goods, prices have risen. Many firms have problems getting enough goods to sell. And with more buyers chasing too few goods, prices have increased.
There has also been a very sharp rise in oil and gas costs - a problem made worse by Russia's invasion of Ukraine.There has also been a very sharp rise in oil and gas costs - a problem made worse by Russia's invasion of Ukraine.
Why are prices rising so quickly? Raising interest rates helps to control inflation by making it more expensive to borrow money. This encourages people to borrow and spend less, and save more.
One way to try to control rising prices - or inflation - is to raise interest rates.
This increases the cost of borrowing and encourages people to borrow and spend less. It also encourages people to save.
However, it is a tough balancing act as the Bank does not want to slow the economy too much.However, it is a tough balancing act as the Bank does not want to slow the economy too much.
Since the global financial crisis of 2008, UK interest rates have been at historically low levels. Last year, they were as low as 0.1%. Since the global financial crisis of 2008, UK interest rates have been at historically low levels. Last year saw rates of 0.1%.
Why are people talking about more rate rises now?Why are people talking about more rate rises now?
The mini-budget of 23 September was followed by a sharp fall in the pound.The mini-budget of 23 September was followed by a sharp fall in the pound.
Investors are worried that the UK government is borrowing too much. Investors are worried that the UK government is borrowing too much money.
The fall in the pound is a problem because a weak pound makes it more expensive to buy imports - from crude oil to food. The drop in Sterling is a problem because a weak pound makes it more expensive to buy imports - from crude oil to food.
That pushes up prices and so the Bank may feel it has to put up interest rates to push inflation back down. That pushes up prices and so the Bank may feel it has to put up interest rates to knock inflation back down.
Tax cuts announced by the government could also push up inflation by giving people more money to spend - another reason for the Bank to put up rates. Tax cuts announced by the government could also drive inflation by giving people more money to spend - another reason for the Bank to put up rates.
That's why economists are now talking about rates peaking at over 6%.That's why economists are now talking about rates peaking at over 6%.
Are other countries raising their interest rates?Are other countries raising their interest rates?
The UK is affected by prices rising across the globe. So there is a limit as to how effective UK interest rate rises will be.The UK is affected by prices rising across the globe. So there is a limit as to how effective UK interest rate rises will be.
However, other countries are taking a similar approach, and have also been raising interest ratesHowever, other countries are taking a similar approach, and have also been raising interest rates
The US central bank has announced big rate rises in the past few months. Other central banks around the world have also raised rates.The US central bank has announced big rate rises in the past few months. Other central banks around the world have also raised rates.
How will you be affected by any change to interest rates? Share your experiences by emailing haveyoursay@bbc.co.uk.How will you be affected by any change to interest rates? Share your experiences by emailing haveyoursay@bbc.co.uk.
Please include a contact number if you are willing to speak to a BBC journalist. You can also get in touch in the following ways:Please include a contact number if you are willing to speak to a BBC journalist. You can also get in touch in the following ways:
WhatsApp: +44 7756 165803WhatsApp: +44 7756 165803
Tweet: @BBC_HaveYourSayTweet: @BBC_HaveYourSay
Upload pictures or videoUpload pictures or video
Please read our terms & conditions and privacy policyPlease read our terms & conditions and privacy policy
If you are reading this page and can't see the form you will need to visit the mobile version of the BBC website to submit your question or comment or you can email us at HaveYourSay@bbc.co.uk. Please include your name, age and location with any submission.If you are reading this page and can't see the form you will need to visit the mobile version of the BBC website to submit your question or comment or you can email us at HaveYourSay@bbc.co.uk. Please include your name, age and location with any submission.