The Bank of England has increased interest rates for the fifth time in a row, to 1.25%. It said it also expects inflation to hit 11% later this year, 1% higher than previous predictions.
What is the Bank of England interest rate?
It’s the interest rate that the Bank of England charges banks and financial institutions for loans. What this means is that it works through the system so that banks eventually put up interest rates for their customers, both savers and borrowers.
What has happened with interest rates?
On Thursday, the Bank of England’s Monetary Policy Committee (MPC), which meets once a month, voted to increase the base rate by 0.25 percentage points. It now stands at 1.25%.
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Why have they gone up?
Part of the Bank of England’s job is to keep inflation down, and recently it has gone up steeply. Everyone has noticed the price of essentials, such as energy, food and petrol going up sharply.
Interest rates are one way of controlling inflation. But putting them up can cause hardship for people.
I have a mortgage – how will it affect me?
Some 1.3 million fixed-rate mortgage deals will end this year, according to UK Finance. That means people will have to search for a new deal, at the higher rate. There are another 1.9 million people on variable or tracker mortgages – for those people, interest rates will automatically go up, affecting their monthly payments.
For those on a variable rate mortgage, the average annual increase will be £191, while for trackers it’s an extra £303. That will affect 2.25 million households already facing rising prices all round.
I have savings – how will it affect me?
This is the one piece of good news. Rises in interest rates can be a boost for savers, as rates on savings accounts may rise, at least a little, although they will still be at historically low levels.
Anything else I need to know?
With the price of many goods and services still going up, adding to inflation, interest rates may have to go up again. That would mean more misery for homeowners.
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