Yesterday, the Bank of England announced they were increasing interest rates. This is the seventh consecutive rise as the Bank battles with soaring inflation and rising costs.
Rates rose from 1.75% to 2.25%, bringing interest to its highest level for 14 years. The central bank also warned the UK may already be in recession, with economic growth slower than expected in July. The economy was previously expected to grow between July and September; however, the Bank of England have now warned they believed the economy will have shrunk by around 0.1% during this period.
Borrowing costs are now at their highest since the economic crash of 2008. At this time, the global banking system faced collapse. Inflation is also at its highest rate for nearly 40 years, causing dire strain for many and leaving many facing extreme financial hardship.
What do rising interest rates mean for you?
Increased interest rates. Make it more expensive for people to borrow. As a result, many people will see their mortgage payments rise. Those on a standard variable rate mortgage will see average increases of £31 a month, with others on typical tracker mortgages facing increases of £49 per month. If you are on a fixed rate deal, you may not be immediately affected, although keep an eye out for price jumps when the fixed deal ends.
Why are interest rates increasing?
In short, rising rates make borrowing more expensive. The aim is to encourage people to spend less due to these increases, and, in theory shrink prices due to decreased demand for goods and services.