The Bank of England (BoE) is gearing up to announce its review of the Base Rate next week - which could lead to some financial changes.
The Bank's interest rates have a major influence on other rates all across the UK. It can affect the rates of people paying for loans, mortgages, or savings accounts - it can also be referred to as the 'base rate'.
Over the past year, the Bank has been steadily raising interest rates in order to drive down inflation and balance out the economy. If it announces an increase on February 2, it will become the tenth consecutive interest rise so far.
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Inflation in the UK is measured by the consumer prices index (CPI) which dramatically hit a 41-year peak of 11.1 per cent in October. However, since then, it has slowly dropped and now stands at 10.5 per cent with BoE predicting that it could slump to 5 per cent by the end of 2023.
However, as far as the BoE is concerned, it will likely see the need to keep adjusting interest rates in response to the economy to achieve that 5 per cent inflation. To find out how this could affect your finances, read below...
Why does the Bank of England change interest rates?
The BoE raises interest rates to ensure that inflation is brought down. The Bank's Base Rate is factored by the country's economical situation and it is up to the Bank to decide what will bring down the rate of inflation over the next few years.
However, the Bank cannot guarantee how high the Bank Rate will go. Similarly, it is hard for economists to predict how high it will go on February 2, but they can make an educated guess.
Will interest rates increase again?
While it is highly likely that interest rates will increase on February 2, this is not a guarantee. On December 15, 2022, the Base Rate rose by 0.5 percentage points to 3.5 per cent.
Prior to this, on November 4, 2022, it rose by 0.75 percentage points from 2.25 per cent. BoE governor Andrew Bailey said last week that inflation might have made a positive turn after it feel in both November and December.
Despite this, it is still set at five times more than the BoE's target of 2 per cent. Some economists have predicted that the Base Rate on February 2 could go up between 0.25 and 0.5 per cent.
What will happen to my money if interest rates go up?
Interest rates will have a direct effect on those with a loan or a mortgage with a variable interest rate. If the interest rate goes up, you may notice that the cost of your repayment will go up as well.
However, if you're on a fixed rate, you won't see any changes to your payments until the end of your fixed period. If you're concerned about how high your monthly payments could go up, you can use a mortgage calculator to better prepare yourself.
Furthermore, if your saving account pays interest, you might see interest rates on your savings going up.
When will interest rates change again?
The BoE reviews interest rates every six weeks. This means it will change again in mid-March. However, it is not yet clear if they will go up, down, or stay the same during that period.
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