On 3 November the Bank of England announced that their interest rate was being raised to 3%, this is a 0.75% increase from what it was previously. The interest rate has increased from 0.1% to 3% since December 2021.
The Bank of England increasing their interest rate will have an impact on other rates in the UK which can affect loans, mortgages or savings accounts.
The cause for this increase is due to the living crisis the UK is currently going through. Over the past couple of months, inflation has been getting higher and higher. To prevent it from getting higher and bring it down, the Bank of England has increased its interest rates.
Low and stable inflation is vital for a healthy economy where people can plan for the future and where hard-earned money keeps its value. Bank of England
Higher interest rates make borrowing money more expensive and encourage people to save money. That often means that consumers will spend less money. Prices of products and services typically rise more slowly when consumers spend less overall. A lower inflation rate results from slower price increases.
Monetary policy refers to the actions we take, such as altering interest rates, to maintain low and steady inflation.
If you currently have a loan or mortgage that has a variable interest rate, then you will see that there will be an increase in your repayments. Whereas if you have a fixed rate, you won't be affected by the increased interest rate until after your fixed period has ended. On the other hand, if you have savings in a bank account that has a variable interest rate, then you may see an increase in the interest paid.