The Bank of England has increased interest rates for the first time in more than a decade. The decision, which was made public on Wednesday, is likely to increase competition and help the economy grow. However, it may also mean that consumers will face more expensive loans.
But how much will a rise in rates actually cost individual users?
Here’s a breakdown of the seven key changes that could affect you.
1) What is the Bank of England’s rate hike?
For the first time since November 2000, the Bank of England decided to raise interest rates by 0.25 percentage points to an all-time high of 0.75 percent on Wednesday.
2) What does this mean for my monthly interest payments?
Lending money is what banks are famous for-and this includes savings accounts and personal loans like mortgages and home equity loans, too.
However, very few analysts predicted that the bank would not raise rates any further – but it did not do so on Wednesday evening.
The bank of England
It was unclear where this leaves policy as inflation continues to rise at a “normality” of over 3% amid rising unemployment and stagnant wage growth. An even more concerning factor is that UK productivity fell by 1% in the last quarter of 2016; this means that British workers are producing less without getting paid any extra.
For a long time, the Bank of England has held rates at an all-time low. In late 2008 and early 2009, when the financial crisis began and growth was at risk of collapsing, the bank did not raise rates for more than two years, saying that it would instead use quantitative easing to boost growth. The result was that jobs were lost, wage growth stagnated, and the cost of living rose even higher.
Former Chancellor George Osborne said in 2015 that there needed to be a new “normality” where money was People have said that the monetary policy committee (MPC) should have raised rates more quickly. However, the MPC minutes that came out on Wednesday show that the committee is at least divided on the issue of spending to stimulate economic growth because increasing interest rates would be “bad for business.”
The monetary policy committee (MPC) has been criticised for not raising rates more aggressively, but MPC minutes released on Wednesday show that the committee is at least conflicted about the issue. The committee was split 7-2 to not raise rates when inflation had risen to 3% in August 2016, highlighting their long-term concerns about rising inflation.
The MPC was worried that if interest rates went up, consumers and businesses would be less likely to borrow money, which would slow growth without making wages or productivity lower. The decision did make policy somewhat more hawkish, but not enough for any economist to predict a rate hike at this meeting.
