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Interest rates: How a rise affects you and your money Interest rates: How a rise affects you and your money
(about 1 hour later)
The Bank of England is widely expected to raise interest rates again on Thursday in an attempt to slow rising prices.The Bank of England is widely expected to raise interest rates again on Thursday in an attempt to slow rising prices.
In June, the Bank rate, set by the Monetary Policy Committee, went up to 5% from 4.5%.In June, the Bank rate, set by the Monetary Policy Committee, went up to 5% from 4.5%.
Another rise could mean pain for some homeowners, but good news for savers.Another rise could mean pain for some homeowners, but good news for savers.
How high could interest rates go?How high could interest rates go?
The Bank rate is currently at its highest level for 15 years.The Bank rate is currently at its highest level for 15 years.
The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and inflation.The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, reducing demand and inflation.
If the Bank puts up rates on Thursday, it will mark the 14th increase seen in a row since December 2021.If the Bank puts up rates on Thursday, it will mark the 14th increase seen in a row since December 2021.
But, so far, the impact has been limited and is likely to take more time to feed through.But, so far, the impact has been limited and is likely to take more time to feed through.
Prices rose by 7.9% in the year to June, according to the Office for National Statistics (ONS). This was lower than 8.7% in the year to May, and down from the peak of 11.1% in October 2022.Prices rose by 7.9% in the year to June, according to the Office for National Statistics (ONS). This was lower than 8.7% in the year to May, and down from the peak of 11.1% in October 2022.
However, that is still almost four times the Bank's 2% target.However, that is still almost four times the Bank's 2% target.
Concerns also remain over the "core inflation" rate - a measure which strips out volatile factors such as food and energy. Although it dipped slightly in June, it is still relatively high.Concerns also remain over the "core inflation" rate - a measure which strips out volatile factors such as food and energy. Although it dipped slightly in June, it is still relatively high.
As a result, there is uncertainty about what will happen in the coming months, but the financial markets expect rates to peak at about 6% early next year.As a result, there is uncertainty about what will happen in the coming months, but the financial markets expect rates to peak at about 6% early next year.
The Bank has to balance the risk of damaging the economy, which has shown little sign of growth, with the need to slow price rises.The Bank has to balance the risk of damaging the economy, which has shown little sign of growth, with the need to slow price rises.
Its Monetary Policy Committee meets eight times a year to decide rates, with the next announcement due on Thursday 3 August.Its Monetary Policy Committee meets eight times a year to decide rates, with the next announcement due on Thursday 3 August.
Why does the Bank of England change interest rates?Why does the Bank of England change interest rates?
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.
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 standard variable rate (SVR) deals usually see an immediate increase in their monthly payments.
Some experts think that interest rate set by the Bank will increase further on Thursday from 5 to 5.25%.Some experts think that interest rate set by the Bank will increase further on Thursday from 5 to 5.25%.
That would mean those on a typical tracker mortgage would pay about £24 more a month. Those on SVR mortgages would face a £15 jump.That would mean those on a typical tracker mortgage would pay about £24 more a month. Those on SVR mortgages would face a £15 jump.
Three-quarters of mortgage customers hold fixed-rate deals.Three-quarters of mortgage customers hold fixed-rate deals.
Their monthly payments may not change immediately, but higher interest rates mean housebuyers - or the 1.8 million people expected to remortgage this year - will have to pay a lot more than if they had taken out the same mortgage a year or more ago.Their monthly payments may not change immediately, but higher interest rates mean housebuyers - or the 1.8 million people expected to remortgage this year - will have to pay a lot more than if they had taken out the same mortgage a year or more ago.
An average two-year fixed deal, which was 2.29% in November 2021, is now well above 6%.An average two-year fixed deal, which was 2.29% in November 2021, is now well above 6%.
The so-called "mortgage bomb" has become a huge economic and political issue.The so-called "mortgage bomb" has become a huge economic and political issue.
As people roll off cheap fixed-rate deals onto products with much higher rates, their monthly repayments can soar by hundreds of pounds.As people roll off cheap fixed-rate deals onto products with much higher rates, their monthly repayments can soar by hundreds of pounds.
The IFS, a politically independent think tank, warns rising interest rates could mean 1.4 million mortgage holders see their disposable income fall by more than 20%.The IFS, a politically independent think tank, warns rising interest rates could mean 1.4 million mortgage holders see their disposable income fall by more than 20%.
You can see how your mortgage may be affected by rising rates with our calculator:You can see how your mortgage may be affected by rising rates with our calculator:
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 credit cards, bank loans and car loans.Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.
But even in April the average annual interest rate was 21.86% on bank overdrafts and 20.13% on credit cards.But even in April the average annual interest rate 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.Individual banks and building societies usually pass on interest rate rises to customers.
There are some good deals on the market, so analysts say that customers should shop around, as many will be on accounts paying little or nothing.There are some good deals on the market, so analysts say that customers should shop around, as many will be on accounts paying little or nothing.
MPs have been putting pressure on banks to ensure savers get the best deals.MPs have been putting pressure on banks to ensure savers get the best deals.
But although many saving accounts are paying more, even the best interest rates aren't keeping up with inflation.But although many saving accounts are paying more, even the best interest rates aren't keeping up with inflation.
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 have prices been going up?Why have prices been going up?
Inflation has gone up worldwide, after Covid restrictions eased and consumers spent more.Inflation has gone up worldwide, after Covid restrictions eased and consumers spent more.
Many firms experienced problems getting enough goods to sell. Oil and gas costs were also higher than they had been - a problem made worse by Russia's invasion of Ukraine.Many firms experienced problems getting enough goods to sell. Oil and gas costs were also higher than they had been - a problem made worse by Russia's invasion of Ukraine.
Although many elements of inflation are global, there are also domestic factors at play in the UK, including rising wages.Although many elements of inflation are global, there are also domestic factors at play in the UK, including rising wages.
Are other countries raising their interest rates?Are other countries raising their interest rates?
Central banks around the world have also been raising interest rates to try and tackle abnormally high inflation.Central banks around the world have also been raising interest rates to try and tackle abnormally high inflation.
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 June meeting. The US central bank has announced big rate rises which have taken its key rate to levels not seen for 22 years.
The European Central Bank recently raised its main interest rate in Europe by a quarter of a percentage point, to 4%. The European Central Bank recently raised interest rates in the eurozone to a joint record high.
Related TopicsRelated Topics
SavingsSavings
MoneyMoney
Personal financePersonal finance
Cost of livingCost of living
UK economyUK economy
Bank of EnglandBank of England
MortgagesMortgages