The Bank of England just raised interest rates yet again, and after 14 consecutive increases, it appears that they will never be reduced.<\/p>\n\n\n\n
They just raised interest rates from 5% to 5.25%, the highest rate seen in the UK in 15 years.<\/p>\n\n\n\n
However, economists believe that inflation and interest rates will rise in the coming months.<\/p>\n\n\n\n
The base interest rate is a measure used by the\u00a0Bank of England\u00a0to control inflation (that\u2019s the change in prices for goods and services over the last 12 months) and keep it at its target rate of 2%.<\/p>\n\n\n\n
If people spend less due to high interest rates, it means inflation will come down.<\/p>\n\n\n\n
It\u2019s important to keep\u00a0inflation\u00a0low enough so that the value of your money does not erode; but, if inflation is too low, the economy does not grow, which threatens the job market.<\/p>\n\n\n\n
But\u00a0increasing interest rates means\u00a0raising the cost of borrowing, so mortgages and paying back your credit cards late become more expensive.<\/p>\n\n\n\n
It also means the bank pays you more on your savings \u2013 although banks do not always have to pass on these high interest rates to savers.<\/p>\n\n\n\n
The Bank has now increased interest rates 14 times in a row since the end of 2021, in an effort to bring down inflation.<\/p>\n\n\n\n
As of June 2023, inflation was at 7.9% \u2013 almost four times higher than the Bank\u2019s target rate.<\/p>\n\n\n\n
On top of the\u00a0cost of living crisis\u00a0caused by high inflation, the government has the added pressure of keeping up with its own promises. PM\u00a0Rishi Sunak\u00a0vowed to halve inflation in January, when it was at 10.1% \u2013 meaning it\u2019s still got some way to go from the current inflation of 7.9%.<\/p>\n\n\n\n
Anyone on a tracker or variable mortgage, or anyone due to renew next year, is particularly vulnerable to changes in interest rates. That\u2019s more than three million Brits in total.<\/p>\n\n\n\n
This increase means these mortgage-owners will have to pay more back to their lender every month, or extend terms, so they pay it back more slowly.<\/p>\n\n\n\n
Deals being offered by lenders have already increased to reflect the rate rises, with the average two and five-year fixes between 6 and 7%.<\/p>\n\n\n\n
The head of the Resolution Foundation think tank,\u00a0Torsten Bell, said people aged between 35 and 44 have the most debt with around \u00a398,000 \u2013 and therefore they\u2019ll probably be most impacted by interest rates rises.<\/p>\n\n\n\n
Those aged 75 and over on average have \u00a35,000 or less in debt, so will be less affected, according to the Resolution Foundation.<\/p>\n\n\n\n
Bell also explained on Twitter that while mortgage pain will be \u201cconcentrated\u201d among richer households where owning am mortgage is more common, the minority of lower income families that have a mortgage are going to feel \u201cmost acute\u201d pain from interest rate changes.<\/p>\n\n\n\n
And renters are likely to feel an extra pinch too, as homeowners pass on their extra cost of their mortgages (60% of rental properties are mortgaged, according to property website\u00a0Zoopla).<\/p>\n\n\n\n
While it\u2019s hard to predict what might happen next in this economy, some investors expect it to peak at 5.75% around the end of the year.<\/p>\n\n\n\n
Nina Scaroni, chief executive of the\u00a0Centre for Economic and Business Research,\u00a0told Sky News\u00a0more increases should be expected before November.<\/p>\n\n\n\n
\u201cWe are expecting more hikes before a pause and then eventual cutting – I don\u2019t think it\u2019s a very long way off,\u201d she said.<\/p>\n\n\n\n
She predicted rates will hit 5.75% by November, with some cuts only arriving in the summer of next year.<\/p>\n\n\n\n
However,\u00a0the financial markets\u00a0predict it will peak between 5.75% and 6% by the start of 2024.<\/p>\n\n\n\n
Until inflation comes down though, the Bank probably won\u2019t lower the base interest rate, to avoid people spending more and inflation rising even higher.<\/p>\n\n\n\n
The Bank will be keen to bring interest rates down too, because keeping them high for a long period of time does increase the risk of negative economic growth and a recession.<\/p>\n\n\n\n
The Bank has predicted that inflation will decline throughout the rest of 2023 \u2013 and so it\u2019s likely to lower rates slowly in response to that.<\/p>\n\n","protected":false},"excerpt":{"rendered":"
The Bank of England just raised interest rates yet again, and after 14 consecutive increases, it appears that they will never be reduced. They just raised interest rates from 5% … <\/p>\n