The Bank of England has once again increased the ‘Bank Rate’ to 0.5% as of 3rd February 2022.
The ‘Bank rate’, sometimes called the ‘Bank of England base rate’ or even just ‘the interest rate’ is the single most important interest rate in the UK. The Bank Rate determines the interest the bank pays to commercial banks which hold money with them, and it influences the rates those banks charge people to borrow money or pay on their savings.
How will this affect your interest rates?
If the bank rate changes, then usually banks will change their interest rates on saving and borrowing, although, Bank Rate isn’t the only thing that affects interest rates on saving and borrowing.
Why does this affect me?
To cover their costs, banks need to pay less on saving than they make on lending, and they cannot pay less than 0% on savings otherwise we may choose not to deposit any money with them.
How this change will affect you will partly depend on whether you are borrowing or saving money.
If rates were to fall and you have a loan or a mortgage, your interest payments may become cheaper. Whereas if you were saving, you’d be paid less interest. This means that it is cheaper for households and businesses to increase the amount they borrow but are rewarded less for saving.
The Bank commented:
“Overall, we know that if we lower interest rates, this tends to increase spending and if we raise rates this tends to reduce spending. So, to meet our inflation target, we need to judge how much people intend to save and spend given the current interest rates. For example, if people start spending too little, that will reduce business and cause people to lose their jobs. In that case we may cut interest rates to help support spending”.
What’s happening now?
As it stands, inflation is rising, we can see it with the dramatic increase to whole-sale energy prices. As such, the bank is keen to reduce spending to alleviate inflation and has decided to increase the Bank Rate to 0.5%
Will my mortgage payments increase?
Lenders have already begun increasing their interest rates with more expected to do so. If you are worried about rising interest rates, book a 20-minute chat with one of our experts today and find out what options are available to you.
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