Another increase in interest rates by the bank of England affects many homeowners and mortgage payers, meaning now is a good time to make sure your finances are in order.
The Bank of England has raised its base rate by 0.5 percentage points, the biggest in 27 years. It takes the base rate to 1.75%, its highest level since 2008. This latest interest rate hike reflects the Bank’s efforts to control rampant inflation amid the cost of living crisis in the UK.
The government tasked the Bank of England with maintaining UK inflation at a stable level of 2% a year. At present, inflation is way above this target at 9.4%, and it’s currently forecast to reach 13% by October. Among the main reasons for this high inflation is the massive surge in the prices of global energy, grain and other key commodities. This has been caused by recent supply chain disruption and the Russian war on Ukraine.
These external factors are beyond the Bank of England’s control. But the Bank is concerned that high levels of inflation will become baked into the economy if domestic wages and prices spiral upwards to compensate for these global price rises. By raising the base rate, it aims to slow the UK economy, weakening workers’ wage bargaining power and so forcing inflation back down.
This isn’t going to happen overnight. It takes one to two years for the effects of base rate increases to work through the economy. But once this happens, the effects are painful. The Bank has forecast that unemployment will rise from 3.8% today to 5.5% next year, implying that an extra 600,000 people will lose their jobs. And, if your wages and other income are lagging behind inflation, your standard of living is being squeezed.
The Bank of England base rate is an important benchmark used by banks to set the interest rates for all kinds of financial products. So, when it comes to personal finances, a base rate rise has a varied impact.
Speaking to a financial adviser or a mortgage adviser can ensure you are getting the right mortgage for your circumstances and potentially reduce payment increases caused by the banks rate increase.
If you are in need of financial advice or would like to discuss your mortgage options, please call our friendly and knowledgeable team at Steel & Co. on 01502 806996 or email