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| Interest rates: Bank of England governor warns interest rate rise hard for many | Interest rates: Bank of England governor warns interest rate rise hard for many |
| (32 minutes later) | |
| Interest rates have risen by more than expected in a shock move as the Bank of England battles to slow soaring prices. | Interest rates have risen by more than expected in a shock move as the Bank of England battles to slow soaring prices. |
| The Bank increased rates to 5% from 4.5%, the highest level in 15 years. Most had expected a smaller rate rise. | The Bank increased rates to 5% from 4.5%, the highest level in 15 years. Most had expected a smaller rate rise. |
| "If we don't raise rates now, it could be worse later," Bank of England governor Andrew Bailey warned. | "If we don't raise rates now, it could be worse later," Bank of England governor Andrew Bailey warned. |
| The move will lead to higher repayments for people with loans and many mortgage holders, but it should benefit savers if the rise is passed on. | The move will lead to higher repayments for people with loans and many mortgage holders, but it should benefit savers if the rise is passed on. |
| Mr Bailey said he knew the rise would be "hard". | Mr Bailey said he knew the rise would be "hard". |
| "Many people with mortgages or loans will be understandably worried about what this means for them... but inflation is still too high and we've got to deal with it," he added. | "Many people with mortgages or loans will be understandably worried about what this means for them... but inflation is still too high and we've got to deal with it," he added. |
| The average two-year fixed residential mortgage now stands at 6.19% while the five-year rate is 5.82%. In June last year, those rates were closer to 3%. | The average two-year fixed residential mortgage now stands at 6.19% while the five-year rate is 5.82%. In June last year, those rates were closer to 3%. |
| Those on a typical tracker mortgage will pay about £47 more a month. Those on standard variable rate (SVR) mortgages face a £30 jump. Since December 2021, that is an increase in monthly repayments of £465 on a tracker and £297 on an SVR. | Those on a typical tracker mortgage will pay about £47 more a month. Those on standard variable rate (SVR) mortgages face a £30 jump. Since December 2021, that is an increase in monthly repayments of £465 on a tracker and £297 on an SVR. |
| Borrowing costs are also likely to rise. Currently the average annual interest rate is 21.86% on bank overdrafts and 20.13% on credit cards. | |
| The dramatic move comes after official figures on Wednesday showed that inflation, the annual rate at which prices go up, remained much higher than expected. | The dramatic move comes after official figures on Wednesday showed that inflation, the annual rate at which prices go up, remained much higher than expected. |
| Chancellor Jeremy Hunt backed the Bank saying it was the only "long-term way to relieve pressure on families with mortgages. If we don't act now, it will be worse later." | Chancellor Jeremy Hunt backed the Bank saying it was the only "long-term way to relieve pressure on families with mortgages. If we don't act now, it will be worse later." |
| But shadow chancellor Rachel Reeves said families would be "desperately worried about what today's interest rate rise might mean for them". | But shadow chancellor Rachel Reeves said families would be "desperately worried about what today's interest rate rise might mean for them". |
| "They want to know that support will be there if they need it," she added. | "They want to know that support will be there if they need it," she added. |
| Latest reaction to the interest rate rise | Latest reaction to the interest rate rise |
| How the interest rate rise affects you | How the interest rate rise affects you |
| Five tips for saving money on your mortgage | Five tips for saving money on your mortgage |
| 'I have to find £400 more each month' | |
| Ewan Cameron bought a flat in London two years ago and has just managed to secure a new fixed-rate mortgage deal, but not before he had two mortgage offers pulled. | |
| He has now got to find an extra £400 a month to pay for his home, and is considering renting out the spare room to help pay for it. | |
| "I remember speaking to a friend who bought at roughly the same time and he locked into a five year mortgage, we both joked about who would end up on the better end of the spectrum in a couple of years' time - he's certainly the one laughing and I'm certainly the one paying the price," he said. | |
| In theory raising interest rates makes it more expensive to borrow money, meaning people have less to spend. This makes it harder for firms to raise prices. | In theory raising interest rates makes it more expensive to borrow money, meaning people have less to spend. This makes it harder for firms to raise prices. |
| However, the process also drags on the UK economy, which is struggling to grow. It is also forcing mortgage lenders - who are affected by the Bank's base rate - to put up their own rates. | However, the process also drags on the UK economy, which is struggling to grow. It is also forcing mortgage lenders - who are affected by the Bank's base rate - to put up their own rates. |
| There have been calls for the government to step in and help homeowners, but Mr Hunt and Prime Minister Rishi Sunak have so far dismissed suggestions that ministers could intervene. | There have been calls for the government to step in and help homeowners, but Mr Hunt and Prime Minister Rishi Sunak have so far dismissed suggestions that ministers could intervene. |
| However, Mr Hunt is set to meet with banks on Friday as pleas grow for more to be done. Consumer champion Martin Lewis has warned "a mortgage ticking time bomb is now exploding". | |
| A shock half per cent interest rise is designed to try to demonstrate the Bank has some control over the growing inflationary fires in the British economy. | A shock half per cent interest rise is designed to try to demonstrate the Bank has some control over the growing inflationary fires in the British economy. |
| An important consideration was the recent rise in the market rates for government borrowing in the UK, and not the US or Europe. This was financial markets starting to ask the question about how tough the Bank is going to be on inflation. The Bank notes how super sensitive markets are to every morsel of new data - this is the Bank's answer for now. | An important consideration was the recent rise in the market rates for government borrowing in the UK, and not the US or Europe. This was financial markets starting to ask the question about how tough the Bank is going to be on inflation. The Bank notes how super sensitive markets are to every morsel of new data - this is the Bank's answer for now. |
| Rates have not been at 5% since 2008, but the UK economy, and in particular the mortgage market, is very different now. The Bank in its deliberations repeatedly referred to the fact that the "full impact" of the rate rise will not be felt "for some time" because of the prevalence of fixed-rate mortgages. There is a risk therefore that rates are having to go higher than otherwise. | Rates have not been at 5% since 2008, but the UK economy, and in particular the mortgage market, is very different now. The Bank in its deliberations repeatedly referred to the fact that the "full impact" of the rate rise will not be felt "for some time" because of the prevalence of fixed-rate mortgages. There is a risk therefore that rates are having to go higher than otherwise. |
| This rate rise will also put further pressure on the economy. It is designed to do so. And further rises, starting in August, will follow if the data continues to disappoint. | This rate rise will also put further pressure on the economy. It is designed to do so. And further rises, starting in August, will follow if the data continues to disappoint. |
| The Bank's Monetary Policy Committee (MPC), which sets UK rates, voted 7-2 in favour of a half percentage point rise - its biggest hike since February. | The Bank's Monetary Policy Committee (MPC), which sets UK rates, voted 7-2 in favour of a half percentage point rise - its biggest hike since February. |
| Two members of the committee voted to keep rates on hold. | Two members of the committee voted to keep rates on hold. |
| In a letter to Mr Hunt, Mr Bailey said that overall inflation was still set fall "significantly" during the course of the year as energy prices come down. | In a letter to Mr Hunt, Mr Bailey said that overall inflation was still set fall "significantly" during the course of the year as energy prices come down. |
| But he added that the Bank would continue to monitor inflation closely, and would raise rates further if necessary. | But he added that the Bank would continue to monitor inflation closely, and would raise rates further if necessary. |
| Interest rates remain the Bank's primary tool to lower inflation, despite debate over their effectiveness. | Interest rates remain the Bank's primary tool to lower inflation, despite debate over their effectiveness. |
| The Bank said it was "continuing to monitor closely the impact" of the significant increase in the Bank rate so far. | The Bank said it was "continuing to monitor closely the impact" of the significant increase in the Bank rate so far. |
| It added that given the number of people yet to come off fixed-rate mortgage deals, the full impact of recent rate rises would "not be felt for some time". | It added that given the number of people yet to come off fixed-rate mortgage deals, the full impact of recent rate rises would "not be felt for some time". |
| What do I do if I can't afford to pay my debts? | What do I do if I can't afford to pay my debts? |
| It is important that you do talk about financial difficulties before finding yourself in a spiral of debt. The earlier, the better. | It is important that you do talk about financial difficulties before finding yourself in a spiral of debt. The earlier, the better. |
| If you think you cannot pay your debts or are finding dealing with them overwhelming, seek support straight away. You are not alone and there is help available. | If you think you cannot pay your debts or are finding dealing with them overwhelming, seek support straight away. You are not alone and there is help available. |
| A trained debt adviser can talk you through the options available. | A trained debt adviser can talk you through the options available. |
| What help and options are available to people struggling with debt repayments? | What help and options are available to people struggling with debt repayments? |
| Related Topics | Related Topics |
| Personal finance | Personal finance |
| UK economy | UK economy |
| Bank of England | Bank of England |