What does the interest rate rise mean for you?
30 August 18  /  News

The Bank of England has raised interest rates from 0.5% to 0.75%. This is only the second rise in a decade. Interest rates now stand at their highest since 2009 and reflect what the Bank of England have perceived as a general boost in the economy, potential for wages to rise and more consumer spending.

Economic growth for the year is predicted to be 1.4% this year and the unemployment rate is expected to fall further below 4.2%, where it currently stands.

How does this rise affect you?

  • Savings – In theory, savings should benefit from a rise in interest rate, but banks were slow to respond to a rise back in November. The 0.25 % rise may not be sufficient enough to make much of a difference to returns
  • Fixed-rate mortgages – These mortgage payments will not increase
  • Variable-rate or tracker mortgages – Currently the standard variable rate mortgage is 4.72 %
  • Debts – Other debts such as personal loans and credit cards may see an increase in payments
  • Retirement income – Any rate rise may also good for retirees buying an annuity, a financial product that provides an income for life
  • Investments – Markets are unlikely to be affected in a big way by a 0.25 per cent rate rise as the impact has already been factored into asset prices. It is likely to increase the pound’s value, as higher interest rates mean better returns for people holding that currency
  • Business owners – retail businesses are likely to feel the affect first, with consumers buying less, banks may charge more for business loans, and profits may also suffer as cost of living increases

Reactions from UK businesses have been mixed. The Institute of Directors, which represents about 30,000 members in the UK has said, ‘the Bank has jumped the gun’, whilst the British Chamber of Commerce similarly described the decision as ‘ill-judged’ at an uncertain time.

Sources
BBC News - www.bbc.co.uk/news/business
The Independent - www.independent.co.uk/news/business