The Bank of England could hike interest rates as high as 7% to tackle inflation, economists have warned.
In a note written to clients, Alan Monk of JP Morgan said a hard landing for the UK economy "looks increasingly likely" warning of "potential upside to rates if expectations do become unanchored or remain high" according to Bloomberg.
Mr Monk reportedly noted that the rate would have to rise a further two percentage points to be able to make an impact on inflation, if it was "required".
He also explained how there were “lots of caveats” to the analysis, which looked at how high rates could need to go based on mortgage interest costs and inflation expectations.
However, his central forecast is for a much more moderate peak rate of 5.75% in November.
Last month, the Bank of England hiked rates by 0.5 percentage points to 5% which left a lot of mortgage holders worried and caused many homeowners struggling the costs.
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Financial markets expect the central Bank to increase its base rate above 6% before Christmas.
How would a 7% interest rate affect me?
Mortgages
A potential 7% interest rate would increase some monthly mortgage payments significantly.
"Tracker" mortgages move in line with the base rate, so these become more expensive when the base rate goes up.
Standard variable rate (SVR) mortgages normally go up too - but it is down to your lender to pass on any rises.
You are usually placed on an SVR deal after your fix or tracker rate ends.
More than 1.4million mortgage holders have a tracker that moves in line with the base rate or a standard variable rate (SVR) deal.
However, you are more likely to pay more when you come to remortgage due to how much rates have risen over the 18 months.
According to data compiled by Moneyfacts.co.uk, as of this morning (July 6) there were 4,594 residential mortgage products available on the market.
The average two year fixed residential mortgage rate today was 6.52%, which is up from an average rate of 6.51% yesterday and the average five year fixed residential mortgage rate is 6.02% - this is the same rate as yesterday.
After the last interest rise of 0.5 percentage points, those on a tracker mortgage saw payment rise by around £47 a month and those on a standard variable rate faced a £30 jump.
Credit card and borrowing
Like mortgages, credit card borrowing will become a lot more expensive if the interest rate rises to 7%.
Credit card interest rates are normally variable anyway, so will change from time to time.
However, in recent years, some lenders have started to link their credit card rates to the base rate - you should get 30 days notice before if your interest rate is to rise so you may not feel the impact immediately.
Interest rates on most personal loans and car financing are normally fixed so most of the time you will not be immediately hit by the rate rise.
However, you should always check with your lender.
How does the interest rate affect my savings?
On a more positive note, the interest rate hike does mean that savings rates are going up.
However, banks have not passed on higher savings rates to customers at the rate interest rates have risen and they still remain relatively low.
Last month, MPs called on banks to "up their game" when passing on the rates.
The bosses of Lloyds, HSBC, NatWest and Barclays are set to face the Financial Conduct Authority (FCA) later today on the speed it has passed on the interest rate rises to customers.
The Chancellor Jeremy Hunt has previously claimed that banks have been "too slow" on passing on the rates and that the issue "needs resolving".
As of writing, the top easy-access savings account is Family Building Society which offers a 4.35% interest rate.
The best notice savings account, which means you have to give a certain amount of notice before making a withdrawal, is DP Capital which is offering 5.05% for 90 days.
You can also get rates of 6% or more if you lock your money away your money into a fixed rate account.
