UK interest rates are expected to rise for the 14th time in a row

  • By Michael Race
  • Business reporter, BBC News

image source, Getty Images

Interest rates are expected to rise for the 14th time in a row as the Bank of England continues its battle to control stubbornly high price rises.

Most economists have predicted the bank will raise its base rate to 5.25% from its current 5% later on Thursday.

That would mean higher interest rates on mortgages and loans for some people, but also higher savings rates.

Inflation in the UK, the rate at which prices rise, is much higher than normal and is putting pressure on households.

The last time the interest rate was 5.25% was 15 years ago in April 2008. However, a rise to 5.25% would mark a smaller increase than July’s dramatic rise to 5% from 4.5% and follows signs that price increases are started to decline.

Inflation fell much more than expected in June and, at 7.9%, is at the lowest level for over a year – but still much higher than the 2% the bank is aiming for.

Pantheon Macroeconomics said this meant policymakers did not need to raise interest rates as much as previously thought.

By making borrowing more expensive, it is the bank’s aim that people have to spend less money, which means that households buy fewer things, and then price increases will slow down.

But it is a balancing act, as raising interest rates too aggressively can cause the economy to fall, but not raising them at all can lead to inflation rising even more.

The free-market think tank the Institute of Economic Affairs (IEA) said the bank should wait for previous rate hikes to take effect before raising rates further.

”It will take some time before previous interest rate increases and falling global commodity prices contribute to lower inflation.

“Further rate rises are unnecessary and could do some economic damage without lowering inflation faster. The UK economy is on the precipice of a sharper slowdown,” said Trevor Williams, a member of the IEA and former chief economist at Lloyds Bank.

Andrew Bailey, the Bank of England governor, has previously denied that the bank has tried to cause a recession – which is typically when the economy shrinks for two three-month periods – in an attempt to tackle rising prices.

“A lot of people with mortgages or loans will understandably be concerned about what this means for them… but inflation is still too high and we have to deal with that,” he said at the bank’s earlier rate decision.

On Wednesday, Prime Minister Rishi Sunak told LBC radio that inflation was not falling as quickly as he would have liked, but that he believed people could “see light at the end of the tunnel”.

An increase in rates would affect different people in different ways.

Mortgage holders with variable rate or tracker loans, or those looking to secure a new fixed rate deal, will find it costs more to borrow the money for their home.

The majority of mortgage holders are on fixed-rate deals, shielding them from the current rate rises, but around 800,000 deals will end by the end of this year and 1.6 million more will by 2024.

In the event of a 0.25% rise, people on a typical tracker loan would cost around £23.71 more per month, while those on standard variable rate (SVR) loans would face a jump of £15.14 on average .

Other effects of higher prices include first-time home buyers being priced out of the market, and fees on some unfixed loans and credit cards also rising.

But people with savings should get a better return on their money – although banks have been condemned for “poor excuses” over their savings rate offers.

For the government, however, an increase in interest rates will have a knock-on effect, which means that it will have to pay more interest on the country’s debt.

What should I do if I can’t pay my debt?

  • Take control. Citizens’ Advice suggests that you work out how much you owe, to whom, which debt is most urgent and how much you have to pay each month.
  • Ask for a payment plan. For example, energy suppliers must give you a chance to settle your debt before taking any action to recover the money

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