For the first time in ten years, the Bank of England has increased the UK’s interest rate from 0.25% to 0.5%. But what does the change mean for you?
Who welcomes the change?
Savers are the biggest winners from this announcement as they are likely to see a higher return on their savings. Some banks are holding off putting their own rates up, but others are following suit.
House Owners with Mortgages
This is where the sting is in the tail. An increase in interest rates will see mortgage repayment rates increase. It is thought that nearly four million households will face higher mortgage interest repayments.
Interest from savings may help towards the cost but in a lot of cases it will not be enough to cover it unless you have a lot put away.
For retirees buying an annuity, that rate rise is good news. Annuity rates follow interest rates or yields of long-term government bonds, known as gilts. As the base rates rise, these yields do too, giving retirees better value for money.
The Federation of Small Businesses (FSB) criticised the decision, saying that this could not come at a worse time for small businesses. The rate rise will mean yet more cost pressures for small firms as they battle spiralling prices and flagging consumer demand.
National Chairman Mike Cherry suggested that the rate rise could lead to businesses viewing borrowing as more risky which could ‘threaten investment, growth and job creation.’
At the end of the day it has only taken the rate back to the level seen in August 2016 and at 0.5% it is still very low.
The pound has also suffered a dip in value, falling by more than a cent against both the dollar and the euro.
Mark Carney defended the decision by saying it was time to ‘take the foot of the accelerator’. He said, ‘To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity. And the MPC continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent’.