Home Inverness colorado loans Why did the Bank raise interest rates and what does it mean?

Why did the Bank raise interest rates and what does it mean?


The Bank of England said it would raise interest rates by 0.5 percentage points to 1.75% on Thursday.

This is the biggest rise in 27 years and the highest that interest rates have reached since January 2009.

But what does the rate hike really mean for households? And does anyone have anything to gain from it? Here we explore the implications.

– Why are interest rates rising so much?

The Bank of England is responsible for keeping inflation under control, aiming for 2% per year.

But in recent months, inflation has started to run away. It reached 9.4% in June and is expected to climb to 13.3% in October, according to a new Bank forecast.

By raising interest rates, the Bank makes borrowing more expensive, so people are likely to spend less.

If people – and businesses – are forced to spend less, demand will decline and prices will fall, or at least the increases will subside.

(PA graphics)

– How will rising interest rates affect people?

The most obvious impact is that it will become more expensive for people to pay off their mortgages.

People who take out a new loan will soon enjoy a higher interest rate due to the change in the Bank.

And those whose mortgages are renegotiated will likely face larger bills than in the past.

Trade association UK Finance said the rate hike would likely cost around £600 a year for the average person with a follow-on mortgage.

– Why is the cost of living soaring?

Inflation is a measure of the change in the price of things the average household buys.

It’s likely to peak in October, largely because of one thing: the amount people pay for the energy they use to run their homes.

Gas prices have soared and energy bills in October are expected to be three times higher than they were a year earlier.

Energy prices will contribute half of the inflation forecast by the Bank.

– Who benefits from the rise in interest rates?

Savers will benefit somewhat from the rate hike, as the banks where they keep their money will likely increase the amount of interest they pay on deposits.

However, less than a third of interest rate hikes since November, when the Bank began raising rates, have actually reached savers.

The impact of the increased interest that savers get will also be more than offset by inflation, which more than decimates savings.