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Interest rates: How the Bank of England's decision affects you and your money Interest rates: How the Bank of England's decision affects you and your money
(about 1 month later)
The Bank of England has held interest rates for a second time in a row following a run of 14 consecutive increases. The Bank of England has held interest rates for a third time in a row following a run of 14 consecutive increases.
The Bank rate, set by the Monetary Policy Committee, is unchanged at 5.25%. The Bank rate, set by the Monetary Policy Committee, will remain at 5.25%.
Another hold may bring some relief to homeowners who have seen mortgage rates rise and potentially the end of better news for savers. Another hold may bring some relief to homeowners who have seen mortgage rates rise but savers are unlikely to see a boost.
When might interest rates go down?When might interest rates go down?
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.
Rates had risen 14 times in a row since December 2021 as the Bank tries to bring inflation closer to its target of 2%.Rates had risen 14 times in a row since December 2021 as the Bank tries to bring inflation closer to its target of 2%.
Prices rose by 6.7% in the year to September, according to the Office for National Statistics (ONS). This was the same as the year to August, but down from the peak of 11.1% in October 2022. Prices rose by 4.6% in the year to October, according to the Office for National Statistics (ONS). This was slower than the increase a month earlier and also down from the peak of 11.1% in October 2022.
Although that is still more than three times the Bank's target, falls have influenced the decision to pause the run of Bank rate rises. That most recent decision was split, with six of the nine-member committee voting for a pause. Although that is still more than twice the Bank's target, falls have influenced the decision to pause the run of Bank rate rises. The latest decision was split, with six of the nine-member committee voting for no change.
Policymakers will be keeping a close eye on the "core inflation" rate - a measure which strips out volatile factors such as food and energy. Policymakers will keep a close eye on the "core inflation" rate - a measure which strips out volatile factors such as food and energy.
The chances of rates actually starting to fall again look slim at the moment. The chances of rates actually starting to fall again look slim before next summer.
At one point, UK rates were expected to rise above 6%, but that peak is now expected to be lower, even if there is a rise at a later date.At one point, UK rates were expected to rise above 6%, but that peak is now expected to be lower, even if there is a rise at a later date.
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.Its Monetary Policy Committee meets eight times a year to decide rates.
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 or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.When interest rates rise or fall, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate change in their monthly payments.
Despite the pause in rises, compared with December 2021, those on a tracker mortgage are still paying £540 more a month, and those on an SVR are paying £299 more a month.Despite the pause in rises, compared with December 2021, those on a tracker mortgage are still paying £540 more a month, and those on an SVR are paying £299 more a month.
Around three-quarters of mortgage customers hold fixed-rate deals. Lenders may now have some confidence to lower mortgage rates, although they are still much higher than much of the last 10 years.Around three-quarters of mortgage customers hold fixed-rate deals. Lenders may now have some confidence to lower mortgage rates, although they are still much higher than much of the last 10 years.
Comparatively high interest rates mean house buyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a year or more ago. Comparatively high interest rates mean homebuyers and those remortgaging will have to pay a lot more than if they had taken out the same mortgage a year or more ago.
As people roll off cheap fixed-rate deals on to products with much higher rates, monthly repayments can soar by hundreds of pounds. Banking trade body UK Finance says there are about 800,000 fixed-rate deals ending in the second half of 2023, and about 1.6 million deals expiring next year. As people roll off cheap fixed-rate deals on to products with much higher rates, monthly repayments can soar by hundreds of pounds. Banking trade body UK Finance says there are about 1.6 million deals expiring next year.
The Institute for Fiscal Studies, a politically independent think tank, has warned that rising interest rates could mean 1.4 million mortgage holders see their disposable income fall by more than 20%.The Institute for Fiscal Studies, a politically independent think tank, has warned that 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 using our calculator:You can see how your mortgage may be affected by using our calculator:
If you can't see the calculator, click here.If you can't see the calculator, click here.
What happens if I can't afford to pay my mortgage?What happens if I can't afford to pay my mortgage?
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.
Bank statistics show that in September, the average annual interest rate was 22.49% on bank overdrafts and 20.89% on credit cards. The average rate for personal loans was 8.73%, down slightly on the previous month. Bank statistics show that in October, the average annual interest rate was 22.52% on bank overdrafts and 21.05% on credit cards. The average rate for personal loans was 8.71%, down very slightly on the previous month.
Lenders could decide to put their rates up, if they expect higher interest rates from the Bank of England in the future.Lenders could decide to put their rates up, if they expect higher interest rates from the Bank of England 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 have been under pressure to pass on higher interest rate rises to customers.Individual banks and building societies have been under pressure to pass on higher interest rate rises to customers.
There are some good deals on the market already, 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 already, so analysts say that customers should shop around, as many will have accounts paying little or nothing.
The UK's financial watchdog has warned that banks will face "robust action" if they offer unjustifiably low savings rates to their customers.The UK's financial watchdog has warned that banks will face "robust action" if they offer unjustifiably low savings rates to their customers.
Although many savings 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.
Why have prices been going up?Why have prices been going up?
Inflation has been relatively high worldwide, after Covid restrictions eased and consumers spent more.Inflation has been relatively high 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?
Interest rates have been increasing across the world in recent months. Interest rates have been increasing across the world, although in recent months other central banks, including the US Federal Reserve and the European Central Bank, have also paused their rate rises.
The UK has had one of the highest rates in the G7 - a group of the world's seven largest so-called "advanced" economies.The UK has had one of the highest rates in the G7 - a group of the world's seven largest so-called "advanced" economies.
It is higher than the Euro area and the US.
How does the UK economy compare to other countries?How does the UK economy compare to other countries?
Related TopicsRelated Topics
SavingsSavings
MoneyMoney
Personal financePersonal finance
Cost of livingCost of living
UK economyUK economy
Bank of EnglandBank of England
MortgagesMortgages