Today 11th May 2023 The Bank of England raised interest rate by 0.25% percentage points to 4.5%.
Generally, when the economy is doing well, people are in work, job security is stable and wages are higher. When interest rates are low, people are also able to borrow more cheaply and providing banks are willing to lend, more people will buy. Right now, we are in a market where mortgages have shot up, compared to a record low in 12/21. The cost of living crisis is also chipping away at the amount people can afford to borrow.
Thursday’s move is yet more bad news for the 2.2 million people on a variable rate mortgage. Roughly half are either on a base rate tracker or discounted-rate deal, with the remaining 50% or so on their lender’s standard variable rate (SVR).
A household with a tracker mortgage currently at 5.25% will see their pay rate rise to 5.5%. These deals directly follow the base rate. This means their monthly payments will rise by £21 a month, assuming they have a £150,000 repayment mortgage with 20 years remaining.
If you are one of the 6 million-plus households with a fixed-rate mortgage, you are unaffected by the latest rise. This group of borrowers will only feel the pain when their current deal expires and they have to renew, which might be in anything between a few weeks or a few years.
"On Thursday 11 May 2023, we raised our interest rate (Bank Rate) by 0.25 percentage points to 4.5%.
Our interest rate influences many other rates in the UK, including those you might have for a loan, mortgage or savings account. Bank Rate is also widely known as ‘the base rate’ or just ‘the interest rate’.
We are raising interest rates because inflation is too high. It’s around 10% now and our target is 2%.
Raising interest rates is the best way we have to bring down inflation
It means many people will face higher borrowing costs. And some businesses will face higher loan rates.
We know that will make things harder for many people, coming on top of higher energy and food bills.
But we need to act to lower inflation. Low and stable inflation is vital so that money keeps its value and people can plan for the future with confidence. It’s fundamental for a healthy economy.
That’s why we have been raising interest rates over the last year.
We expect inflation to fall quickly this year and then meet our 2% target by late 2024."
This is good news for savers, isn’t it?
When the Bank started raising interest rates back at the very end of 2021, the very best easy access savings rate was paying just 0.67%. The succession of interest rate increases have made things better for savers, but the highest-paying instant access account (offered by Chip) is still only paying 3.71%.
The Bank's monetary policy committee ("MPC") meets to discuss and set UK interest rates 8x a year. This happens roughly one every 6 weeks, with announcements being made on Thursday. In these meetings, the 9 members of the MPC, including governor A. Bayley, vote on whether rates should change.
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