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 21 Version 22
Interest rates: How the rise affects you and your money Interest rates: How a rise affects you and your money
(25 days later)
The Bank of England has raised interest rates for a 12th consecutive time as it tries to stop prices rising so quickly. The Bank of England has raised interest rates for a 13th consecutive time as it tries to stop prices rising so quickly.
The Bank rate has gone up to 4.5% from 4.25% following a meeting of the Monetary Policy Committee. The Bank rate, set by the Monetary Policy Committee, has gone up to 5% from 4.5%.
The change means further pain for some homeowners, but it could benefit savers.The change means further pain for some homeowners, but it could benefit savers.
How high could interest rates go?How high could interest rates go?
The Bank rate is at its highest level for almost 15 years, rising consistently in response to the soaring cost of living. The rate of inflation - which charts rising prices - has remained stubbornly high, in part owing to food prices increasing at their fastest rates for 45 years. The Bank rate is at its highest level for 15 years, as the Bank tries to slow the rise in the cost of living.
Prices rose by 8.7% in the year to April, according to the Office for National Statistics (ONS). This is down from 10.1% in March but above the 8.2% figure widely forecast by analysts. But the rate seems likely to go higher. Bank governor Andrew Bailey has said that if prices continue to rise rapidly then further rate increases will be needed. The financial markets expect rates to peak at about 6% early next year.
There has been a series of Bank rate increases since December 2021 attempting to control inflation. The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, and so bringing down demand and slowing price rises.
There is uncertainty over the coming months, not least about whether rate rises may be close to, or at, an end. Some economists suggest there could be one or two more rises. There has been a series of Bank rate increases since December 2021 attempting to control inflation - which charts rising prices. The inflation rate target is 2%.
The Bank will be keen not to dampen the economy, which has shown little sign of growth. But, so far, the impact has been limited and is likely to take more time to feed through.
The peak would still be lower than initial predictions after the turmoil of last year's mini-budget. Prices rose by 8.7% in the year to May, according to the Office for National Statistics (ONS). This is the same as the previous month but down from its peak of 11.1%.
There is particular concern over the core inflation rate - a measure which strips out volatile factors such as food and energy - which has been going up.
As a result, uncertainty remains about what will happen in the coming months, but many economists believe there could be more rate rises to come.
The Bank has to balance the risk of damaging the economy, which has shown little sign of growth, with its battle to slow price rises.
The Bank's Monetary Policy Committee meets eight times a year to decide interest rate policy.The Bank's Monetary Policy Committee meets eight times a year to decide interest rate policy.
Why does the Bank of England change interest rates?Why does the Bank of England change interest rates?
It has been under pressure to put rates up because it has a target to keep inflation at 2%, but prices are currently rising at more than 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 government's English Housing Survey.Just under a third of households have a mortgage, according to the government's English Housing Survey.
After a period of ultra-low rates, many homeowners are now facing the likelihood of much more expensive monthly repayments. The Bank of England says up to four million households face a higher monthly mortgage bill this year. An estimated 356,000 mortgage borrowers could face difficulties with repayments by July next year, according to City watchdog the Financial Conduct Authority. When interest rates rise, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate increase in their monthly payments.
When interest rates rise, more than 1.4 million people on tracker and variable rate deals usually see an immediate increase in their monthly payments. The rise from 4.5% to 5% means those on a typical tracker mortgage will pay about £47 more a month. Those on SVR mortgages face a £30 jump.
The increase in the Bank rate to 4.5% from 4.25% means those on a typical tracker mortgage will pay about £24 more a month. Those on standard variable rate mortgages face a £15 jump. Since December 2021, that's an increase in monthly repayments of £465 on a tracker and £297 on an SVR.
This comes on top of increases following the previous recent rate rises. Compared with pre-December 2021, average tracker mortgage customers will be paying about £417 more a month, and variable rate mortgage holders about £266 more.
Forecasts suggest that they could start to come down again as the year goes on, but there remains a significant degree of uncertainty about that.
Three-quarters of mortgage customers hold a fixed-rate mortgage. Their monthly payments may not change immediately, but house buyers - or anyone seeking to remortgage, estimated to be 1.8 million people this year - will have to pay a lot more now than if they had taken out the same mortgage a year or more ago.Three-quarters of mortgage customers hold a fixed-rate mortgage. Their monthly payments may not change immediately, but house buyers - or anyone seeking to remortgage, estimated to be 1.8 million people this year - will have to pay a lot more now than if they had taken out the same mortgage a year or more ago.
There has been considerable upheaval in this market since September's mini-budget, even though most of the policies that were announced have now been ditched. The so-called "mortgage bomb" has become a huge economic and political issue. An average two-year fixed deal, which was 2.29% in November 2021, is now above 6%.
An average two-year fixed deal, which was 2.29% in November 2021, is now 5.28% - potentially a difference of hundreds of pounds each month in repayments for a typical borrower. However, rates are lower than their peak in the autumn, which would have been the most expensive time to take out a fixed deal. As people roll off cheap fixed-rate deals onto products with much higher rates, their monthly repayments can become hundreds of pounds more expensive.
The Institute for Fiscal Studies, a politically independent economics-focused think tank, says rising interest rates could mean 1.4 million mortgage holders see their disposable incomes fall by more than 20%.
You can see how your mortgage may be affected by rising rates with our calculator below.You can see how your mortgage may be affected by rising rates with our calculator below.
If you can't see the calculator, click here.If you can't see the calculator, click here.
Credit cards and loansCredit cards and loans
Bank of England interest rates also influence the amount charged on things such as credit cards, bank loans and car loans.Bank of England interest rates also influence the amount charged on things such as credit cards, bank loans and car loans.
Even ahead of this decision, the average annual interest rate in March was 21.07% on bank overdrafts and 20.29% on credit cards. Even ahead of this decision, the average annual interest rate in April was 21.86% on bank overdrafts and 20.13% on credit cards.
Lenders could decide to put prices up further, if they expect higher interest rates in the future.Lenders could decide to put prices up further, if they expect higher interest rates in the future.
Low interest rates are good for borrowers, but bad for saversLow interest rates are good for borrowers, but bad for savers
SavingsSavings
Individual banks and building societies usually pass on interest rate rises to customers. The deals being offered now are better than anything seen for years.Individual banks and building societies usually pass on interest rate rises to customers. The deals being offered now are better than anything seen for years.
Analysts say that people should shop around for a better savings rate, with many paid little or nothing in interest in many accounts. Major banks have been under pressure from MPs to pass on rate rises.Analysts say that people should shop around for a better savings rate, with many paid little or nothing in interest in many accounts. Major banks have been under pressure from MPs to pass on rate rises.
But although this means savers get a higher return on their money, interest rates are not keeping up with rising prices.But although this means savers get a higher return on their money, interest rates are not keeping up with rising prices.
This means the value of cash savings - its buying power - is falling in real terms.This means the value of cash savings - its buying power - is falling in real terms.
Why does increasing interest rates help lower inflation? Why have prices been going up?
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 have been going up quickly worldwide, as Covid restrictions eased and consumers spent more.Prices have been going up quickly worldwide, as Covid restrictions eased and consumers spent more.
Many firms have experienced problems getting enough goods to sell. There have been problems in the UK recently with shortages of fresh food. And with more buyers chasing too few goods, prices have increased. Many firms experienced problems getting enough goods to sell. Oil and gas costs were higher than they had been - a problem made worse by Russia's invasion of Ukraine.
Oil and gas costs were higher than they had been - a problem made worse by Russia's invasion of Ukraine. Although many elements of inflation are global, there are concerns that some are domestic, such as rising wages.
Raising interest rates helps to control inflation by making it more expensive to borrow money. This encourages people to borrow less and spend less, and to save more.
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. Rates were at 0.1% in 2021.Since the global financial crisis of 2008, UK interest rates have been at historically low levels. Rates were at 0.1% in 2021.
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 rates.However, other countries are taking a similar approach, and have also been raising interest rates.
The US central bank has announced big rate rises which have taken its key rate to levels not seen for 16 years. Banking failures in the US have raised fears about the health of the financial system. It has just raised rates again. The US central bank has announced big rate rises which have taken its key rate to levels not seen for 16 years, although it held them at its last meeting.
The European Central Bank has just raised its main interest rate in Europe by a quarter of a percentage point, to 3.25%. The European Central Bank recently raised its main interest rate in Europe by a quarter of a percentage point, to 4%.
Other central banks around the world have also raised rates, as inflation continues to cause problems in a host of major economies.Other central banks around the world have also raised rates, as inflation continues to cause problems in a host of major economies.
Related TopicsRelated Topics
SavingsSavings
MoneyMoney
Personal financePersonal finance
Cost of livingCost of living
UK economyUK economy
Bank of EnglandBank of England
MortgagesMortgages