Bank of England Raises Interest Rates

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December 16, 2021 - Furnley House

Bank of England Raises Interest Rates

The Bank of England has raised interest rates for the first time in three years, moving the base rate from 0.1% to 0.25%.

The decision to increase interest rates has been made to try and curb rising prices. Inflation has increased by 5.1% in the year to November, and data released this week shows the price of goods is climbing at the fastest pace in 10 years.

With the increase in inflation, the Bank of England has warned that over the winter months there is unlikely to be any reprieve from soaring energy costs driving up inflation from 5.1% at present to 6% next spring – three times its official target.

Whilst the interest rate rise is modest, many experts had not foreseen an increase this side of Christmas because of uncertainty about the new Covid variant Omicron. The Monetary Policy Committee’s decision to increase bank rates now, before it knows the full extent of the economic damage wrought by the surging Omicron variant, underlines concern about the wider outlook for inflation.

What does the interest rate rise mean for mortgage borrowers?

Many borrowers are on fixed rate mortgages, and they won’t be affected by the increase in interest rate. However, those who are on a tracker rate mortgage or their lender’s standard base rate will see their monthly repayments go up.

According to reports by the BBC*, the rate rise will add just over £15 to the typical monthly repayment for a tracker mortgage customer. A standard variable rate mortgage- holder is likely to pay nearly £10 extra a month. To put this into context, nearly two million people in the UK have one of these two types of mortgages.

Those who are coming to the end of a fixed rate mortgage deal should seek advice from a good mortgage adviser. Many lenders will have already factored in this rate rise into their mortgage product range; however, interest rates are still extremely low. If making consistent fixed mortgage repayments is important to you, then securing a new fixed rate mortgage now may be worth considering.

Is this finally good news for savers?

Savers will always welcome news of higher rates, but there are no guarantees that financial institutions will pass on the increase to their savers. Even if savings interest rates do rise, the amount of interest paid is likely to be well below the rate of inflation, and this is a concern. Whilst everyone should hold some cash savings, those who are holding money for the long-term in cash could see its value decrease in real terms because of rising inflation. Cash savers should consider investing some of that money to make up the shortfall, and a financial adviser can work with you to build a portfolio of investments that suit your personal attitude towards taking investment risk. With the cost of living rising so quickly, a carefully selected investment portfolio is more likely to ensure that your savings hold their value over a 5-10 year time frame.

You can also save tax-free with Individual Savings Accounts (ISAs), so when you are reviewing the interest rate on your savings account it is really important to make sure you are using your annual ISA allowance. In the 2021 to 2022 tax year, the maximum you can put into an ISA wrapper is £20,000.

Getting advice

If you need advice about your mortgage or investing, we are here to help. Our team of advisers at Furnley House are happy to answer your questions: call us on 0116 269 6311 or email





All information correct at the time of writing.