he Bank of England has raised interest rates again, bringing them to a 14-year high.
What does it mean for households and why does the Bank think it should do this. We explore the results here.
What happened to interest?
The Bank of England has decided to raise interest rates for the ninth consecutive time, bringing the base rate to 3.5%.
It is the highest base rate since the financial crisis. The last time rates were higher – by 4.5% – was in November 2008.
The Bank said rates had to rise because the supply of workers remains tight, driving up wages. This will help drive up inflation.
There are also signs that the pressures driving inflation are lasting longer than expected.
What impact do higher interest rates have on ordinary people?
People with tracker mortgages will likely be the ones most directly and immediately affected by the change in interest rates that the Bank announced on Thursday.
Their mortgages will rise after the announcement because they match the Bank’s interest rate.
But people with fixed-price mortgages will also be hit later when they need to renew their deals
In any case, savers will benefit somewhat, as the interest paid on savings accounts will rise.
What do economists think will happen next?
Most economists seem to think that more interest rate hikes are likely to come – the question is more how much and how high interest rates will be.
Most seem to think that rates will rise another 0.5 percentage points in upcoming meetings.
However, it is likely that some members of the Bank’s Monetary Policy Committee (MPC) will block further rate hikes. Two people on the committee voted to keep rates unchanged this month.
Why is the Bank of England raising interest rates?
One of the Bank’s main responsibilities is to try to keep inflation at 2% – and its decision-makers want to make sure inflation doesn’t stay above or below that level for too long.
Currently. inflation is more than five times higher than the target, forcing the Bank to withdraw its instruments to try to get it under control again.
The most effective tool the Bank can use is interest rates. Raising interest rates makes it more expensive to borrow and more profitable to save.
This means less money is being spent in the economy, so prices are likely to remain lower.