6 Oct 2023
How do interest rates affect you and your money?
On Thursday 21st September the Bank of England made the decision to keep the bank rate remaining the same at 5.25%. This came as a relief to those thinking it may increase for a 15th consecutive time.
When will interest rates go down?
Despite there being a Bank rate pause, it is still at its highest level for 15 years. Raising interest rates means it is more expensive to borrow money, therefore, people have less to spend which in turn reduces demand and therefore inflation.
Policymakers will be looking closely at the “core inflation” rate which is a measure on food and energy which went from 6.9% in July to 6.2% in August.
Andrew Bailey, governor of the Bank of England said: “we have not had any discussion about reducing rates, because that would be very, very premature. Our job is to get inflation down.”
How do interest rates affect me?
High-interest rates mean house buyers and those remortgaging will have to pay a lot more currently due to rates being much higher compared to previous years.
There are 1.4 million people on tracker and standard variable rate (SVR) deals – these people usually see an immediate change in their monthly payments. Around 75% of mortgage customers have fixed-rate deals. Lenders may now have some confidence to lower mortgage rates, despite them being much higher than the last 10 years.
Why have rates been increasing?
It is not just the UK that has been increasing interest rates, although they have one of the highest rates across the world. Inflation has been fairly high worldwide following Covid restrictions being lifted and consumers spending more.
Businesses experienced issues getting goods to sell, oil and gas costs were higher than they had been previously, which was made worse by Russia’s invasion of Ukraine. There aren’t just global elements that have caused an increase in rates, there have been other factors in the UK, including rising wages.
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